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The United States Supreme Court recently granted Certiorari in a closely watched case that could have significant consequences for the Securities and Exchange Commission (SEC) and certain other federal administrative agencies.
In SEC v. Jarkesy, the Supreme Court will determine the constitutionality of the SEC’s broad discretion in deciding which cases will be tried to an SEC administrative law judge (ALJ) and which will be tried to a jury in an Article III federal court. It will also consider the constitutionality of Congress’ delegation of certain authority to the SEC relating to rules and regulations that the SEC has considered or adopted, and the SEC’s discretionary authority to make determinations on policy matters where Congress has not provided sufficient guidance. The Court also will consider the constitutionality of the rules on removal of administrative law judges.
In May of 2022, the Fifth Circuit Court of Appeals, in a 2-to-1 panel opinion, determined that the SEC’s current discretionary authority to bring civil fraud claims before its in-house administrative law judges in civil-enforcement proceedings is unconstitutional in three separate ways. First, the appeals court held that the use of administrative tribunals for enforcement of common law claims which are not public claims violates the Seventh Amendment right to a jury trial. Second it found that Congress violated the non-delegation doctrine in giving the SEC broad discretion to determine whether and when to prosecute enforcement proceedings before its own ALJ’s as opposed to federal courts. Third, the Fifth Circuit held that the SEC’s double layer of for-cause removal protection for administrative law judges was also unconstitutional.
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