Arguments in SEC v. Jarkesy focus on jury trial rights, but implications for federal agencies and state capacity remain a concern.
Last year, the United States Court of Appeals for the Fifth Circuit made a controversial decision that could have severely limited the power of the Securities and Exchange Commission (SEC) and potentially enabled former President Donald Trump to replace federal civil servants with loyalists. The Supreme Court recently heard arguments in the case, SEC v. Jarkesy, which centers around the question of whether defendants in SEC enforcement proceedings are entitled to a jury trial. While the Court’s decision is likely to weaken the SEC’s ability to protect investors and try complex cases, it appears unlikely to go as far as the Fifth Circuit in undermining federal agencies and state capacity.
The Background of the Jarkesy Case
The Jarkesy case involves George Jarkesy, a Republican activist and hedge fund manager accused by the SEC of misleading investors. An administrative law judge determined that Jarkesy violated federal securities law and ordered him to pay a civil penalty and disgorge illicit gains. Jarkesy’s Supreme Court case challenges the SEC’s decision to bring the case before an administrative law judge instead of a federal district court.
The Differences Between Administrative Law Judges and Article III Judges
Administrative law judges are typically in-house at the agencies that bring cases before them. They are civil servants appointed through a merit selection process and specialize in specific areas of the law, such as securities fraud. Article III judges, on the other hand, are political appointees who serve for life and hear a wide range of cases under federal and state law. One key distinction is that litigants in Article III courts can demand a trial by jury, while administrative law judges typically do not use juries.
The Focus on the Seventh Amendment and Jury Trial Rights
Oral arguments in Jarkesy primarily revolved around whether the Seventh Amendment, which guarantees the right to a jury trial in “suits at common law,” applies to SEC enforcement actions before administrative law judges. The Supreme Court’s previous decision in Atlas Roofing v. OSHA established that the Seventh Amendment does not apply to cases brought by the government to enforce public rights created by statutes. Jarkesy’s case falls under this category, as he was accused of violating a federal statute.
The Court’s Republican Majority and Concerns About Federal Agencies
While the Court’s Republican-appointed majority appeared uncomfortable with the Atlas Roofing decision, they also expressed concerns about completely upending the government’s ability to resolve cases in administrative forums. Chief Justice John Roberts, in particular, voiced his belief that federal agencies have become too powerful and advocated for transferring some of their power to Article III judges. However, the Court seemed to search for a middle ground that would allow certain cases to be heard by Article III courts while preserving the capacity of administrative forums.
Conclusion: The Supreme Court’s decision in the Jarkesy case is likely to weaken the SEC’s power and limit the government’s ability to try complex cases in specialized forums. While the Court’s Republican majority expressed concerns about jury trial rights and federal agency power, they also seemed hesitant to completely undermine the state’s capacity to enforce the law. Ultimately, Jarkesy’s case is expected to be sent to an Article III court for a jury trial, highlighting the protection of hedge fund managers’ rights over workers’ rights.
Leave a Reply