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SEC judge who took on the 'Big Four' known for bold moves

A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June
A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June

By Sarah N. Lynch

WASHINGTON (Reuters) - Cameron Elliot, the U.S. administrative judge who recently delivered a stunning rebuke to the global "Big Four" accounting firms, has a reputation for not shying away from big cases.

When he was a federal prosecutor, Elliot was known for being deliberate, unflappable and for going after powerful interests, including violent gang members and the activist group Greenpeace.

Now, more than a decade later, Elliot is making waves as an administrative law judge for the U.S. Securities and Exchange Commission.

He is one of three such judges who have become increasingly influential, as well as controversial. Critics say the internal court system gives the SEC a home-court advantage.

The impact of the court was on full display when Elliot sided with the SEC on January 22 in a blunt 112-page opinion that slapped the Chinese units of the "Big Four" accounting firms with a six-month U.S. industry suspension.

Elliot scolded the firms for failing to hand over audit documents the SEC wanted to pursue fraud investigations against U.S.-listed Chinese companies.

The ruling hits the Chinese units of Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG.

In particular, Elliot denounced the firms for knowingly putting themselves in a situation in which they could not comply - due to Chinese secrecy laws - and then saying they should be relieved of their duty because they invested substantial money setting up shop in China.

"Such behavior does not demonstrate good faith, indeed, quite the opposite - it demonstrates gall," Elliot wrote.

It was arguably one of the most significant rulings in the history of the SEC's administrative courts. If the Big Four lose an appeal, companies would need to find a new auditor during the suspension period or face having their shares suspended.

It also comes at a time when the legal venue is growing in importance. In the 2010 Dodd-Frank law, Congress expanded the SEC's power to seek penalties in its home administrative court against a broader array of defendants, a move that has made these proceedings more attractive to SEC enforcement lawyers.

Unlike court hearings, administrative proceedings are overseen by judges who are on the SEC payroll but who operate independently and have specialized legal expertise.

Critics say they create unfair advantages for the SEC. There is limited discovery, trials are fast-tracked and defense attorneys cannot generally take depositions. Also, they say the appeals process is conflicted because defendants must first appear before the same five-member commission that authorized the enforcement action before they can get an audience before a U.S. appeals court.

"Increasingly, people's livelihoods are subject to an administrative process before a judge who is employed by the agency that has brought the proceeding, whose decisions are reviewed by the agency that brought the proceeding," said Locke Lord partner Michael Perlis, who once tried a case before Elliot.

"At some point I think there may be serious constitutional challenges to the breadth of administrative proceedings and the scope of review."

'RIGID' SENSE OF RIGHT AND WRONG

Of the three judges who sit on the SEC bench, Elliot has the shortest tenure, having joined in April 2011. He served as a submarine officer in the U.S. Navy and Naval Reserve and holds a physics degree from Yale and a law degree from Harvard, according to his SEC biography.

He clerked for a judge in the U.S. District Court of Nevada, served as a trial attorney on patent litigation at the Justice Department, worked as an assistant U.S. attorney in both Miami and Brooklyn, and spent a few years handling intellectual property litigation in private practice at Darby & Darby.

As many administrative law judges do, Elliot started his judicial career at the Social Security Administration in 2008.

Elliot declined to be interviewed by Reuters.

But according to former colleagues and lawyers who have practiced before him, Elliot has a reputation for being an even-tempered person with a sharp legal intellect.

"He has this kind of ability to just take a complicated situation, either the facts or law, and voluminous discovery, and distill it down to a very straight-forward clear legal brief," said Pierre Yanney, a partner at Stroock & Stroock & Lavan LLP who hired Elliot at Darby & Darby.

Yanney also pointed to his "rigid" sense of right and wrong. When Elliot became an administrative law judge, he would never allow Yanney to spend more than the minimum allowed by law whenever the two met for lunch - about $13.

"We went a few times to this Indian buffet that was like $12.99," Yanney said with a laugh.

Defense attorneys say Elliot is viewed as being sympathetic to the agency's enforcement division. He has issued more than 50 "initial decisions" at the SEC, and while the SEC has not always gotten everything it wanted, he has yet to rule against the agency.

At the same time, however, none of his initial decisions have been overturned on appeal, suggesting they have legal muster to withstand challenges.

Elliot's record of siding with the SEC is in contrast to some of his peers, including Chief Judge Brenda Murray, who has a more mixed case history and a reputation for being a wild card.

In 2011, for instance, she rejected the SEC's case against two State Street executives accused of misleading investors about mortgage-backed securities.

FROM GANGS TO GREENPEACE

As a prosecutor in Miami, Elliot pursued a variety of cases, from identity theft and drug trafficking to gang violence.

His colleagues in the office of the U.S. Attorney for the Southern District of Florida said he was a "trial machine," holding the record in his unit for bringing the most cases to trial.

One notable case involved a ruthless gang in Northern Miami known as the Terrorist Boyz. "I remember the satisfaction he got out of this case was the fact he was clearing the community of some really bad elements," said Markenzy Lapointe, a partner at Boies, Schiller & Flexner LLP who worked with Elliot.

The case was so dangerous that one government informant was killed and Elliot also received threats, Lapointe said.

Another case that grabbed national media attention involved an indictment Elliot filed against Greenpeace.

The case was controversial because Elliot relied on a 19th century "sailor mongering" law as a basis to bring charges against Greenpeace after two of its activists boarded a cargo ship to protest the illegal importation of Amazon mahogany.

Critics pounced on the Justice Department, saying it was trampling on Greenpeace's free-speech rights. Lauren Fleischer Louis, who worked in the U.S. Attorney's Office with Elliot and is now a partner at Boies, Schiller & Flexner, said she does not believe the high level of scrutiny phased Elliot.

She said the case showcased his sharp legal mind. "He is almost like a computer in his ability to file away information and pull it back at the right time and make a connection between two things that to most people on the surface would seem unconnected," she said.

Elliot ultimately lost the Greenpeace case after a federal judge acquitted the group. But his former colleagues said he generally did not dwell on it when he lost a case.

"He never backed down from a case," Louis said. "His actions demonstrate that if a grand jury believed there was enough to indict, he would present it to a jury. He didn't mind his losses and he didn't take them personally."

(Reporting by Sarah N. Lynch; Additional reporting by Aruna Viswanatha; Editing by Karey Van Hall and Dan Grebler)

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