Supreme Court tackles second major battle against administrative state this term
The Supreme Court Considers SEC’s Powers in Major Case
The Supreme Court is set to examine the Securities and Exchange Commission’s (SEC) authority to enforce securities law through its in-house tribunal system, rather than in court. This case, known as Jarkesy v. SEC, is one of three significant cases this term that could have a profound impact on the administrative state.
The arguments in Jarkesy v. SEC come at a time when the Republican-appointed majority on the high court has chosen several cases that have the potential to disrupt federal agency authority under President Joe Biden and future administrations. The case revolves around hedge fund manager and conservative radio host George Jarkesy, who was fined and barred from the industry by the SEC for securities fraud.
Controversy Surrounding the SEC’s In-House System
The U.S. 5th Circuit Court of Appeals ruled in favor of Jarkesy, stating that the SEC’s ability to impose penalties through in-house enforcement proceedings violated the Constitution’s Seventh Amendment right to a jury trial and encroached on presidential and congressional powers. The Biden administration has appealed the ruling, emphasizing its exceptional importance.
Critics argue that the SEC’s in-house system, which relies on SEC-appointed administrative law judges (ALJs), unfairly favors the prosecution and denies defendants the opportunity for a fair trial before an impartial jury in federal court. Jarkesy’s attorneys claim that the entire system is rigged against defendants, citing the agency’s consistent track record of ruling in its own favor.
Proponents of the in-house system argue that it expedites proceedings and allows the SEC to protect investors more efficiently. A study conducted by the University of British Columbia found that claims brought in-house are 27 times faster than those brought in federal court.
Potential Implications for Other Regulatory Agencies
If the Supreme Court deems ALJs unconstitutional, it could have far-reaching consequences for other regulatory agencies, such as the Federal Deposit Insurance Corporation, Federal Reserve System, Office of the Comptroller of the Currency, and the National Credit Union Administration. These agencies also rely on in-house judges to adjudicate claims and lack the option to bring enforcement actions in federal court.
The SEC, responsible for enforcing laws that protect shareholders, has faced setbacks at the Supreme Court in recent years. The court ruled in 2018 that the SEC erred in appointing in-house judges and granted targets of agency actions a better chance to take their cases to federal court.
Three Major Administrative Law Challenges
Jarkesy v. SEC is one of three major administrative law challenges the Supreme Court will hear this year. Another case involves the Consumer Financial Protection Bureau’s funding mechanism, while the third challenges the long-standing precedent known as the Chevron deference.
All three cases have the potential to significantly diminish the powers of government agencies under the executive branch. However, it remains to be seen whether the court will rule in favor of the challengers or maintain long-standing precedent.
For now, the Supreme Court will determine whether Jarkesy can succeed in his Seventh Amendment claim against the SEC, potentially forcing the agency to send more enforcement cases to federal court. Additionally, Jarkesy’s nondelegation claim, which questions Congress’s ability to grant agencies unchecked power, could further jeopardize the future of agency tribunals.
A decision in Jarkesy v. SEC is expected by the end of June next year.
How does the case reflect the ongoing political battle between Republicans and Democrats over the authority of federal agencies and the administrative state
>istol found that the SEC’s in-house process resolved cases 70% faster than the federal court system. Additionally, they argue that the ALJs are experts in securities law and can provide more nuanced decisions compared to juries with limited knowledge of the subject matter.
The Supreme Court’s Potential Impact
If the Supreme Court upholds the 5th Circuit’s ruling, it would significantly limit the SEC’s ability to enforce securities law and potentially disrupt the administrative state. The SEC relies on its in-house tribunal system to efficiently handle and adjudicate a large volume of cases. Without this system, the agency may struggle to effectively regulate the securities industry and protect investors.
Moreover, a ruling against the SEC could lead to other federal agencies facing legal challenges to their in-house systems, undermining the power and autonomy of these agencies. It could also give defendants in other regulatory cases the opportunity to challenge the constitutionality of administrative law judges and seek alternative avenues for resolving disputes.
Political Implications
The case has political implications, as it highlights the ongoing battle between Republicans and Democrats over the scope of federal agency powers. The Republican-appointed majority on the Supreme Court has shown a willingness to rein in the authority of federal agencies, often seen as acting beyond their congressionally delegated powers.
On the other hand, the Biden administration’s decision to appeal the ruling demonstrates its commitment to defending and strengthening the administrative state. It argues that the SEC’s in-house system is a critical tool in effectively enforcing securities law and safeguarding the financial system.
As the case unfolds, it will be closely watched by legal experts, scholars, and the financial industry. The Supreme Court’s decision will have far-reaching implications for the SEC’s enforcement powers and the future of administrative law in the United States.
Conclusion
The Supreme Court’s consideration of the SEC’s authority to enforce securities law through its in-house tribunal system is a major case that has the potential to reshape the administrative state. The controversy surrounding the SEC’s in-house system raises important constitutional and procedural questions about the rights of defendants and the efficiency of the regulatory process.
While critics argue that the in-house system is biased and denies defendants a fair trial, proponents emphasize its efficiency and expertise in handling complex securities cases. The Supreme Court’s ruling in Jarkesy v. SEC will have significant implications for the SEC’s ability to regulate the securities industry and may impact other federal agencies’ in-house enforcement systems.
Ultimately, this case highlights the ongoing political and legal debate over the scope of federal agency powers and the balance between administrative efficiency and individual rights. The Supreme Court’s decision will shape the future of the administrative state and have implications for the broader landscape of regulatory enforcement in the United States.
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