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The SEC’S Bleak House of Cards: Some Reflections on Jarkesy v. SEC and Judicial Doctrine

Margaret A. Little
Senior Litigation Counsel

June 30, 2023

George Jarkesy, a private businessman who came into the Securities and Exchange Commission’s (SEC) sights in 2013 after his businesses lost money in the 2008 recession, was trapped in SEC administrative proceedings for over a decade. He holds the unenviable distinction of having his name grace two dramatically divergent circuit court opinions, and his name will likely becomeshorthand for a future landmark Supreme Court opinion. A two-judge panel majority on the Fifth Circuit Court of Appeals recently held in Jarkesy v. SEC:

“(1) [T]he SEC’s in-house adjudication of [Jarkesy’s and his
fund’s] case violated their Seventh Amendment right to a jury
trial; (2) Congress unconstitutionally delegated legislative
power to the SEC by failing to provide an intelligible principle
by which the SEC would exercise the delegated power, in
violation of Article I’s vesting of “all” legislative power in
Congress; and (3) statutory removal restrictions on SEC ALJs
violate the Take Care Clause of Article II.”

This has broad implications for administrative adjudication. If upheld, it means that not even Congress can strip Americans’ jury trial rights when the case involves a potential deprivation of life, liberty, or property. Jarkesy II applies the nondelegation doctrine for the first time in decades, holding that Congress failed to provide an intelligible principle to support the SEC’s unilateral power to determine whether its targets will be tried in a separate branch of government before an impartial, unbiased judge in a proceeding that affords due process and equal protection of the law. Or whether SEC targets must surrender those constitutional rights—solely at the agency’s discretion—and be tried in an in- house court where the prosecutor is also their judge, as well as their first and final avenue of appeal on fact-finding. Crucially, the SEC has a materially higher win rate in its in-house courts, whereas it wins only 61% of its federal court cases with jurors as the triers of fact. Finally, Jarkesy II holds that SEC administrative law judges (ALJs) enjoy multiple layers of unconstitutional tenure protection from presidential control and accountability in violation of Article II’s command that the President shall “take Care” that the laws be faithfully executed.

Originally Published in Texas Review of Law and Politics