Activist investor Stilwell settles SEC case he claimed was illegal

Activist hedge fund manager Joseph Stilwell and his Stilwell Value LLC will pay more than $589,000 to settle U.S. Securities and Exchange Commission allegations that they failed to properly disclose loans made among funds that the firm controlled.

Monday's accord resolved an SEC administrative proceeding that Stilwell, 53, had challenged as unconstitutional because of how SEC law judges are appointed.

The SEC said the defendants arranged about $20 million of loans among various Stilwell funds from 2003 to 2013 to further the funds' investment strategies. While all loans were repaid, the SEC said investors were not properly apprised of their existence, terms and potential conflicts of interest.

The defendants agreed to pay $350,000 of civil fines and to give up $239,157 in fees and interest. Joseph Stilwell accepted a one-year ban from associating with any broker or investment adviser, and New York-based Stilwell Value accepted a censure. Neither defendant admitted wrongdoing.

Stilwell often invests in community banks, and recently oversaw about $200 million of assets.

"There is no allegation that there was any improper financial gain," Steven Glaser and Peter Hardy, lawyers for the Stilwell funds, said in a joint statement. "Mr. Stilwell and the firm are happy to resolve this civil matter."

Under the 2010 Dodd-Frank financial reforms, the SEC gained power to pursue more enforcement cases in administrative proceedings, which judges on the regulator's payroll handle, rather than in federal court.

Critics have said this can be unfair to defendants because litigation is sped up, discovery is limited, and defense lawyers generally cannot take depositions.

In October, Stilwell sued to stop the SEC from pursuing what he called an "imminent" administrative proceeding.

He and other defendants have said such proceedings are unconstitutional because administrative law judges enjoyed job protections that could make it impossible for the president to remove them, despite their being executive branch officials.

Wing Chau, a money manager made famous in Michael Lewis' book "The Big Short," last year tried unsuccessfully to halt an SEC administrative case accusing him of fraud. In January, an SEC judge ordered Chau and his firm to pay more than $3 million in fines, improper profit and interest.

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Joseph Stilwell, Securities and Exchange Commission, Dodd-Frank

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