DD Support Board and Research Team

[hedge_fun]

Jarkesy v. SEC: A Case That May Change America….

It seems that the federal administrative agencies are besieged by constitutional attacks on all sides. That the administrative-state cases — plural — changing America will arise sooner or later has been in little doubt. The fact that the issues would arise in a single case was not on anyone’s radar. However, this is precisely what has happened.

The prerogatives the agencies have often assumed they have are under a scrutinizing microscope. To illustrate, agencies often are alleged: (1) to claim too much — and the wrong kind of — deference where the interpretations of statutes are at stake; (2) to so claim where the interpretations of their own regulations are at issue; (3) to have usurped the prerogative of law-making — a power the Constitution vests exclusively in Congress, not the Executive; and (4) to try and penalize private entities through agency proceedings, notably by foregoing the structural advantages that a jury trial would afford them in an Article III court — as most federal courts are.

A serious, concentrated attack on agencies was ossified by the U.S. Court of Appeals for the Fifth Circuit when, on May 18, 2022, it decided Jarkesy v. Sec. & Exch. Comm’n.1 In a remarkable opinion, a 2-1 panel of the Fifth Circuit held that the Securities and Exchange Commission (SEC) or actions related to it violated the Constitution in the following ways: (a) by trying private entities through “in-house” agency proceedings for alleged violations of federal law, in spite of the Seventh Amendment’s Jury Trial Clause; (b) by devising laws in pursuance of a congressional delegation that lacked an intelligible principle, in violation of the Constitution’s separation of powers and the Legislative Vesting Clause; and (c) by having Administrative Law Judges (ALJs) who could not be removed by the president, despite the Take Care Clause of Article II, try the petitioners for securities law violations.

https://taftlawpr.blob.core.windows.net/taft/files/fileuploads/63b8817ea4a7a200249f89ce/White%20Paper%20Jan%202023.pdf