Supreme Court to assess SEC’s use of in-house judges following numerous tainted cases.

The Supreme Court to Consider Constitutional Questions Over⁣ SEC’s Use of In-House Judges

The Supreme Court is gearing up to tackle a case this fall that raises constitutional concerns regarding the Securities and Exchange Commission’s (SEC) use of in-house judges to⁤ handle ​cases. The Biden administration⁤ is ​appealing a ruling from‍ the U.S. 5th Circuit Court of⁤ Appeals, arguing that if the ruling is not‌ reversed, it ​will have far-reaching consequences across‌ the⁤ federal government. The appeals court found in May 2022 that the plaintiff’s right to a jury trial was violated, shortly after‍ the SEC admitted to improperly accessing files in ⁢multiple cases.

The Biden Administration’s Appeal

“The Court Of⁢ Appeals erred in holding that ⁣Congress violated the Seventh Amendment by authorizing the SEC⁣ to bring ‌administrative proceedings seeking civil penalties,” according to a ⁢petition from the Justice⁣ Department asking the Supreme Court to⁣ reverse the 5th Circuit’s ruling.

The ‍case, known as Jarkesy v. SEC, involves a Texas-based hedge ⁢fund manager and conservative talk ​radio host, George Jarkesy, who is accused by the SEC of inflating the ⁢value of his assets⁢ and making false claims. Jarkesy denies these allegations. The SEC prosecuted him through its internal ‍adjudication process, which does not involve a jury. Jarkesy​ argues that this violates his Seventh Amendment right to a jury trial. The SEC has around ‍a dozen administrative⁢ law judges who handle hundreds of cases each year.

Critics of the in-house​ proceedings argue that the SEC is acting as both prosecutor and judge,‌ and that these cases should be heard in a U.S. court. These concerns are amplified by the fact that the SEC admitted to improper file sharing ⁤in ​Jarkesy’s case⁣ and‍ around 90 others. ‌The SEC referred to ⁤this issue as a “control deficiency” and dismissed 42 open cases as a result,‌ including many against small investment advisers. Jarkesy’s case was‍ preserved because it had already been closed when ⁤the administrative⁢ law judge‌ ruled ⁣against him in 2014.

Controversy ⁤Surrounding the SEC’s Actions

“It’s the equivalent of ‍a party in litigation having access to a judge’s briefs from her law clerks,” said Nick Morgan, an attorney⁤ representing defendants against the SEC.

The Supreme Court’s decision to consider SEC v. Jarkesy came just ⁤28 days after the mass dismissal of cases by⁢ the commission. Jarkesy’s counsel believes ​that the SEC⁤ anticipated the Supreme Court’s decision and wanted to get ahead of the upcoming briefing. Peggy Little, a senior litigator at the New‌ Civil Liberty Alliance, believes ⁢that the mass dismissal was a pretext to limit defendants’ ability to challenge ⁤the cases and their rights⁣ to discovery.

Jarkesy’s in-house trial dates back to 2014 when an administrative​ law judge found him guilty of misrepresentations⁤ tied to his investment fund.​ The SEC‌ imposed‌ industry and penny stock bars on Jarkesy, ⁤leading him to ⁤appeal to the 5th Circuit, ⁢which vacated ‌the SEC’s decision ⁣in May 2022.

The SEC has ‌emphasized that there ‍is no evidence of its in-house prosecutors gaining​ an unfair ‌advantage⁣ from ​the​ improper file sharing.‍ However, the control deficiency was discovered by the commission in⁢ 2021 and publicly reported in April of the following year. The SEC’s use of in-house trials has faced criticism⁣ since Congress granted the commission the power to use them in cases against broader groups⁣ of​ defendants in 2010. The Supreme Court has previously ruled against​ the SEC in 2018, finding that the commission’s administrative law judges were unconstitutionally‍ appointed.

The upcoming Jarkesy case provides the Supreme Court with another opportunity to address concerns about administrative agencies overstepping their ‌authority. A decision‌ is expected before July of next year.

​ How does the ‌SEC’s use of in-house judges in administrative proceedings affect the independence and⁢ impartiality of the judiciary, according to critics

Y’s‌ case, however, was allowed‌ to proceed.

The Supreme Court’s consideration of this case has garnered significant attention and has prompted legal⁢ scholars and experts to weigh in on the constitutional implications at ⁢stake. The central question at hand ‍is whether the SEC’s use of in-house judges to ⁤handle cases involving civil penalties​ violates the Seventh ⁤Amendment ​right to a jury trial.

Supporters ​of the SEC’s practice argue that administrative proceedings provide a faster and more efficient way to ‍resolve cases,‍ particularly those involving complex financial matters. They believe that​ the⁤ expertise of the in-house judges ensures⁣ fair and knowledgeable adjudication. Furthermore, they⁤ contend that the ⁢SEC’s authority ⁤to use such proceedings ⁢is authorized by Congress and thus within its constitutional bounds.

On the other ‍hand, critics argue that the SEC’s use of in-house judges undermines the ‌independence and impartiality of the‌ judiciary. They ⁢view it ‍as a violation of the fundamental principle of separation of powers,⁣ as the SEC is effectively acting as both prosecutor and judge in these cases. They argue that a jury trial​ is necessary to ‌ensure a fair and unbiased resolution.

The ⁣admission by the SEC of improper file sharing in Jarkesy’s case and ⁤others has added fuel⁣ to ⁣the critics’ concerns. ⁢The mishandling of sensitive information raises doubts about the integrity and reliability of the ⁣SEC’s internal adjudication process. It also ​raises‍ questions about whether defendants are receiving due process and⁣ a fair chance to defend‌ themselves.

The outcome ⁢of this ‌case could have far-reaching implications not only for​ the SEC but also for other federal​ agencies that use similar administrative proceedings. If the Supreme Court were⁢ to rule ⁢in ⁤favor of Jarkesy, it could potentially invalidate ​the use ​of in-house judges in such cases, requiring them to be tried in a traditional court setting. This would have significant practical and procedural consequences for the⁤ affected agencies and⁢ could lead to a backlog ⁢of​ cases in the‌ federal court system.

As the Supreme Court begins to grapple ‍with the ‌constitutional questions⁤ raised in Jarkesy v. SEC, legal scholars and experts await its decision with great anticipation. ⁢The‍ ruling will ‌provide clarity on the limits of the SEC’s ‍authority and the extent of individuals’ rights to‍ a jury trial in administrative proceedings. It will shape the future landscape of how federal agencies handle enforcement actions and⁣ may result‍ in significant changes to the current practices ‍of the SEC and other agencies.

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