The Supreme Court heard arguments in SEC v. Jarkesy, a case that could weaken the Securities and Exchange Commission’s (SEC) ability to protect investors and try complex cases. While the Court’s decision is likely to diminish the SEC’s power, it is unlikely to result in a catastrophic blow to the federal government’s capacity to function.
Last year, the United States Court of Appeals for the Fifth Circuit issued a decision that posed a significant threat to the SEC and the federal government’s ability to function effectively. However, the Supreme Court’s recent hearing in the case SEC v. Jarkesy suggests that the Court is unlikely to adopt the extreme positions put forth by the Fifth Circuit. While the Court’s decision is expected to weaken the SEC’s power and limit the government’s ability to try certain cases, it is unlikely to result in a complete catastrophe.
1: The Background of the Jarkesy Case
The Jarkesy case revolves around George Jarkesy, a Republican activist, radio show host, and hedge fund manager. The SEC accused Jarkesy’s funds of misleading investors and inflating the value of certain holdings to charge higher management fees. An administrative law judge ruled that Jarkesy had violated federal securities law and ordered him to pay a civil penalty and disgorge illicit gains.
2: The Issue of Administrative Law Judges vs. Article III Judges
The crux of the Jarkesy case lies in the SEC’s decision to bring the case before an administrative law judge rather than an Article III judge. Administrative law judges are civil servants appointed through a merit-based 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 array of cases. The difference between the two forums is that litigants in Article III courts can demand a trial by jury, while administrative law judges typically do not use juries.
3: The Seventh Amendment and the Role of Statutes
The arguments in Jarkesy focused on whether the SEC’s use of administrative law judges violated the Seventh Amendment’s right to a jury trial. The Supreme Court’s 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. Since Jarkesy was accused of violating an act of Congress and the case was brought by the federal government in its sovereign capacity, the Seventh Amendment does not guarantee a jury trial in this context.
4: The Court’s Republican Majority and Concerns about Administrative Power
During the oral arguments, the Court’s Republican-appointed majority expressed discomfort with the government’s ability to choose the forum for a case, particularly in relation to the right to a jury trial. However, it is worth noting that some of the justices, including Justice Neil Gorsuch, have previously ruled against the right to a jury trial in other cases. The concern about administrative power and the desire to shift power to Article III judges may be a motivating factor for the Court’s right flank.
5: Potential Implications of the Court’s Decision
While it appears likely that Jarkesy will prevail and have his case heard by an Article III court with a jury trial, the overall impact on the federal government’s ability to enforce the law is expected to be relatively minor. The decision may weaken the SEC’s power to protect investors and try complex cases, but it is unlikely to result in a catastrophic blow to US state capacity.
Conclusion:
The Supreme Court’s hearing in the Jarkesy case suggests that while the SEC’s power may be weakened, the Court is unlikely to adopt the extreme positions put forth by the Fifth Circuit. The decision is expected to limit the SEC’s ability to protect investors and try complex cases, but it is unlikely to result in a complete catastrophe for the federal government’s ability to function. The Court’s ruling will have implications for the balance of power between administrative law judges and Article III judges, as well as the right to a jury trial in enforcement proceedings brought by the SEC.
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