The Securities and Exchange Commission’s (SEC) in-house judges break the U.S. Constitution by rejecting fraud defendants’ right to a jury trial and acting without necessary guidance from Congress, the 5th U.S. Circuit Court of Appeals ruled on May 18th in a stunning victory for constitutionalists.
The court ruled 2-1 in favor of hedge fund manager George Jarkesy Jr and financial investment consultant Patriot28 LLC, reversing an SEC administrative law judge’s decision that they committed securities scams.
A representative for the SEC and counsel for the petitioners did not have immediate reactions to requests for comment about the ruling.
Within minutes ‘5th Circuit’ was trending on Twitter with left-leaning journalists and pundits responding with wide condemnation.
Mark Joseph Stern of Slate tweeted, “The 5th Circuit just dismantled the SEC’s power to enforce securities law. This decision is beyond radical. It is nihilistic.”
The 5th Circuit just dismantled the SEC's power to enforce securities law. This decision is beyond radical. It is nihilistic. https://t.co/6X46t2f4vY
— Mark Joseph Stern (@mjs_DC) May 18, 2022
“The 5th Circuit continues its attempt to demolish modern American government. In this decision, two judges have effectively ruled that it’s unconstitutional for regulatory agencies to exercise the authority Congress has given them.”
You say that like the 5th Circuit striking down the administrative state is a bad thing. https://t.co/IuLYpPfvra
— Adam Wolf ★ (@AdamWolfTX) May 18, 2022
In the ruling Wednesday, the majority stated that since looking for charges belongs to financial obligation collection, which is a personal right, the offenders were entitled to a jury trial.
They wrote in part,
“Petitioners raise several constitutional challenges to the SEC enforcement proceedings. We agree with Petitioners that the proceedings suffered from three independent constitutional defects: (1) Petitioners were deprived of their constitutional right to a jury trial; (2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide it with an intelligible principle by which to exercise the delegated power; and (3) statutory removal restrictions on SEC ALJs violate Article II.”
The SEC had actually argued that it was acting to safeguard financiers and implement public rights found in the securities laws.
The majority likewise found that SEC judges, called administrative law judges, do not have authority under the Constitution since Congress did not supply guidance on when the SEC must bring cases internally instead of in a court.
U.S. Circuit Court Jennifer Walker Elrod, concurred with by Circuit Court Judge Andrew Oldham, who penned the majority opinion.
Circuit Court Judge Eugene Davis dissented, stating the majority had actually misread the Supreme Court’s decisions on personal versus public rights. He stated the SEC’s capability to choose its forum resembles district attorneys’ capability to select the charges they bring.
Davis likewise dissented from the majority’s ruling that SEC judges are unconstitutionally secured from being fired.
The judgment comes two days after the U.S. Supreme Court consented to evaluate a 5th Circuit ruling against the SEC in another case challenging the commission’s internal court.
H/T Reuters
