Money Manager Sues SEC to Stop Administrative Action in $1.5 Billion CDO Case


A money manager and his firm recently sued the Securities and Exchange Commission claiming that the agency violated their constitutional rights by bringing an administrative proceeding for securities claims in connection with several collateralized debt obligation transactions (CDOs). Wing F. Chau and his firm Harding Advisory LLC (Plaintiffs) assert that the SEC deprived them of significant procedural protections by not bringing a lawsuit in federal court.

In October 2013, the SEC commenced an administrative proceeding against Plaintiffs, alleging that they committed fraud in connection with the creation and marketing of various CDOs, including a $1.5 billion CDO known as Octans I for which Harding served as collateral manager. The SEC alleged that Plaintiffs defrauded investors by failing to reveal that a hedge fund, whose interests were not aligned with those of investors, had a role in choosing the collateral for Octans I.  

In filing suit against the SEC, Plaintiffs claim that the SEC “intentionally and strategically singled out the Plaintiffs by bringing [the] case as an [administrative proceeding] and effectively tying the Plaintiffs’ hands behind their backs.” Plaintiffs allege that the SEC engaged in disparate and unlawful treatment of Plaintiffs, citing what Plaintiffs contend are several factually similar CDO cases that were tried in federal court. Plaintiffs seek a declaration that the SEC’s decision to initiate and pursue administrative proceedings against them violates their equal protection rights, and seek a permanent injunction enjoining the SEC from pursuing the administrative action.  

Chau v. SEC, No. 14-CV-1903 (S.D.N.Y. Mar. 18, 2014).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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