Supreme Court to consider multi-pronged constitutional attack on SEC

The argument on Wednesday in Securities and Exchange Commission v. Jarkesy will present a remarkable spectacle of three entirely distinct constitutional challenges to wholly disparate attributes of the SEC. Ordinarily, the ability of the justices to control their docket would allow them to wait on each question for the development of a circuit conflict and select a suitable case in which to resolve each issue. But in this case a bold (I did not say “rogue”) panel of the U.S. Court of Appeals for the 5th Circuit accepted all three arguments and invalidated three aspects of the SEC’s operations. To leave the decision unreviewed would force Congress to revise substantially the affected portions of the securities laws solely based on the opinion of one divided lower court panel – hence, the Supreme Court’s buffet of constitutional law topics on Wednesday morning. Because the arguments are so far-ranging and distinct, an article of reasonable length can offer only the barest summary of the principal arguments on each point. Suffice it to say that both sides have support from large groups of prominent amici.

The case stems from an administrative proceeding that the SEC brought against hedge fund founder and investment adviser George Jarkesy in 2013. The SEC’s in-house enforcement proceedings eventually found that Jarkesy and his firm had committed securities fraud, and it ordered them to pay $300,000 in fines and to repay nearly $700,000.The first question before the justices is whether Congress constitutionally authorized the agency to adjudicate administrative proceedings that impose monetary penalties. That raises a question under the court’s deeply fraught doctrine of “public rights,” which offers an exception to the Seventh Amendment jury trial requirement. Under the Seventh Amendment, most defendants in civil cases seeking monetary damages have a right to a jury trial; the exceptions generally require establishing that the type of action in question could have been brought in the 18th century (when the Seventh Amendment was ratified) in an equity court without a jury. Within that framework, the public rights doctrine is the doctrine that allows administrative agencies, operating without a jury, to impose monetary penalties. When it applies, it is because the right in question is a “public” right that would not have required the kind of “[s]ui[t] at common law” to which the Seventh Amendment applies.