On January 8, the U.S. District Court for the District of Columbia granted the SEC’s motion to dismiss a constitutional challenge to its follow-on administrative proceeding brought by two California-based investment advisers. The case stemmed from a prior enforcement action in which the SEC claimed that the two advisers had breached their fiduciary duties and defrauded clients. The advisers had consented to a prior enforcement settlement without admitting liability and later filed suit seeking to enjoin the SEC’s follow-on proceeding, which sought to bar them from the securities industry. The plaintiffs raised four claims: (i) the SEC’s proceeding violated the Due Process Clause of the Fifth Amendment by combining prosecutorial and adjudicative functions; (ii) only federal courts, not the SEC, could decide such cases under Article III; (iii) the proceeding deprived the plaintiffs of a jury trial and their right to pursue their profession in violation of the Fifth and Seventh Amendments; and (iv) they were denied a hearing as required by the Advisers Act and the APA.

The court held that it lacked jurisdiction over the jury trial and statutory-hearing claims because the Advisers Act vests exclusive review of SEC orders to federal courts of appeals. The court further rejected plaintiffs’ due process and Article III challenges on the merits, concluding that D.C. Circuit precedent forecloses those constitutional arguments and that recent U.S. Supreme Court cases did not overturn that precedent “either directly or by implication.”