web analytics

SEC’s Judge, Jury and Executioner Model Challenged at Supreme Court

Decisions in this case could change how the federal government does business.

Hopes and fears abound over Wednesday’s (Nov. 29) Supreme Court hearing in SEC v. Jarkesy. The three distinct constitutional issues involved put this case at the top of those to watch this term at the High Court. It stems from a Securities and Exchange Commission (SEC) enforcement action against one man but could change the way much of the federal government does business. Small government advocates pray the Court will seize the opportunity to bring the metastasizing state to heel. Meanwhile, pro-establishment forces fear just such a ruling, hoping for an adjudication that permanently quiets demands that the Congress and the Executive respect the separation of powers.

SEC as Judge, Jury, and Executioner

New banner Legal Affairs with ScottGeorge Jarkesy is a hedge fund founder pursued by the SEC in 2013 for being a fraudster. The commission ordered him and his company to pay about a million dollars in fines and restitution. However, all the agency’s proceedings were conducted in-house, which gave rise to the challenge. The SEC did not go to federal court or have the Department of Justice file charges. Instead, it used an administrative law judge (ALJ), an SEC employee, to decide the matter. Reports indicate about 30 federal agencies regularly use ALJ courts in lieu of independent federal courts.

As a friend of the court brief submitted by the libertarian Cato Institute put it:

“An alphabet soup of agencies now interpret the contours of their own authority, promulgate regulations governing aspects of our everyday lives, and prosecute alleged violators in-house, with limited Article III review. In short, agencies now play judge, jury, and executioner.”

Jarkesy had a significant win at the 5th Circuit Court of Appeals, which ruled that the SEC’s enforcement action was unconstitutional for three reasons. The Supreme Court agreed to look at each: whether the 7th Amendment guarantee of a jury trial protects people from government agencies initiating enforcement and judging cases themselves; whether it is constitutional to allow the SEC to choose to enforce laws in-house instead of going through Article III federal courts; and whether ALJ judges have too much protection from being fired.

Time to Panic!

Statists are in a near panic that the federal government will have to give the accused due process before an independent court with a jury. Headlines like Slate‘s “One of the Most Complex Cases of the Supreme Court Term Could Also Be the Most Devastating” tell the tale. What could be devastating about requiring due process to penalize those accused of wrongdoing? A brief submitted on behalf of Elon Musk, Mark Cuban, and others said, “[T]hey believe it is important that the SEC not be permitted to pick and choose whether parties are granted their constitutional right to jury trials or are forced to proceed in enforcement proceedings with administrative law judges (‘ALJs’) immune from proper and meaningful oversight.”

The SEC was created by law in 1934 in response to the Wall Street crash of 1929. The agency is independent because it is insulated from direct control by the president of the United States. Yet the commander-in-chief alone appoints its five-member commission with staggered terms. Only three members can be from the same political party.

The Supreme Court scheduled no other arguments for the day, indicating it would give this case a lengthy hearing.

Read More From Scott D. Cosenza, Esq.

Latest Posts

NYC’s Migrant Debit Card Controversy

As waves of illegal immigrants continue to cross the US southern border, cities, states, and towns across the...

Trump and Biden: A Tale of Two Border Visits

Former President Donald Trump is at Eagle Pass, Texas, visiting American residents, immigrants, and community...

Latest Posts

NYC’s Migrant Debit Card Controversy

As waves of illegal immigrants continue to cross the US southern border, cities, states, and towns across the...