In a Bloomberg Law article, co-authors litigation & enforcement partner Jeremiah Williams and associate Rory Skowron examine how the multi-pronged constitutional challenges to the Securities and Exchange Commission (SEC) may soon limit the ability of administrative law judges to levy fines.
The SEC “could lose a key enforcement mechanism,” as several U.S. Supreme Court justices seemed open to barring the use of administrative law judges to decide securities fraud cases during recent argument in SEC v. Jarkesy, said Jeremiah and Rory.
Jarkesy arises out of an SEC civil enforcement action against George Jarkesy Jr., whom the agency accused of committing fraud in violation of federal securities laws. Following a non-jury administrative proceeding, an SEC administrative law judge found Jarkesy liable and ordered him to pay $300,000 in fines and to disgorge nearly $700,000 of ill-gotten profits. The U.S. Court of Appeals for the Fifth Circuit later vacated that decision on three independent constitutional grounds, including that Jarkesy had a Seventh Amendment right to have the case decided by a jury.
During oral argument, several justices appeared to sympathize with Jarkesy’s argument. Justice Neil Gorsuch, for example, suggested that the SEC’s enforcement action was no different than a suit for common-law fraud, to which the Seventh Amendment would undoubtedly apply. Others notably disagreed, particularly Justice Elena Kagan, who said that Jarkesy’s argument was squarely foreclosed by longstanding precedent. Still, the Court, which has exhibited a growing skepticism of administrative agencies in recent years, generally appeared more receptive to Jarkesy’s position than to the SEC’s.
Though lately the SEC and other agencies have increasingly opted to bring enforcement actions in Article III courts, seeking monetary penalties in non-jury administrative proceedings “remains a key means of enforcing federal law,” said Jeremiah and Rory. “Eliminating agencies’ ability to do so could lead agencies to file even more, if not most, of their enforcement actions in the already-overburdened Article III courts.”
“Or it could simply result in less enforcement. Either way, the court’s likely—at least partial—affirmance of the Fifth Circuit has potential to upend the last half-century or more of administrative law and dramatically alter the way that federal law is enforced,” said Jeremiah and Rory.
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