SCOTUS 22-859: 7-2 Dissenting

S.E.C. v. Jarkesy - This case concerns the SEC’s ability to bring enforcement actions for securities fraud before administrative law judges, rather than in federal court

The target of an enforcement action argues this venue choice stems from an unconstitutional delegation of legislative power to the SEC and that the proceeding violates the Seventh Amendment right to a jury trial. In U.S. Securities and Exchange Commission v. Jarkesy, the Court has the potential to change the way government agency claims are adjudicated.

Facts of the Case

George Jarkesy established two hedge funds, with Patriot28 as the investment adviser, managing $24 million in assets from over 100 investors. The SEC initiated an investigation in 2011, eventually bringing an in-house action alleging fraud under multiple acts. Jarkesy challenged the SEC’s proceedings in the U.S. District Court for the District of Columbia, citing constitutional infringements, but both the district court and the U.S. Court of Appeals for the D.C. Circuit denied the injunction, finding that the district court lacked jurisdiction.

After an evidentiary hearing by an Administrative Law Judge (ALJ), Jarkesy was found guilty of securities fraud. Jarkesy sought review by the Commission, and while that petition was pending, the U.S. Supreme Court decided Lucia v. SEC, holding that SEC ALJs were improperly appointed. Jarkesy, however, waived his right to a new hearing. The Commission affirmed the fraud findings, imposed penalties, and rejected several constitutional arguments. He then filed a petition for review in the U.S. Court of Appeals for the Fifth Circuit, which reversed and remanded, finding multiple constitutional violations.

Question

Does the statutory scheme that empowers the Securities and Exchange Commission violate the Seventh Amendment, the non-delegation doctrine, or Article II of the U.S. Constitution?

Syllabus

SECURITIES AND EXCHANGE COMMISSION v.

JARKESY ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

No. 22–859. Argued November 29, 2023—Decided June 27, 2024

Dissenting Opinion Delivered by Roberts

A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator. Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands. Jarkesy and Patriot28 are entitled to a jury trial in an Article III court. We do not reach the remaining constitutional issues and affirm the ruling of the Fifth Circuit on the Seventh Amendment ground alone. The judgment of the Court of Appeals for the Fifth Circuit is affirmed, and the case is remanded for further proceedings consistent with this opinion.

Dissenting Sotomayor Opinion joined by Kagan, Jackson

By giving respondents a jury trial, even one that the Constitution does not require, the majority may think that it is protecting liberty. That belief, too, is deeply misguided. The American People should not mistake judicial hubris with the protection of individual rights. Our first President understood this well. In his parting words to the Nation, he reminded us that a branch of Government arrogating for itself the power of another based on perceptions of what, “in one instance, may be the instrument of good . . . is the customary weapon by which free governments are destroyed.” Farewell Address (1796), in 35 The Writings of George Washington 229 (J. Fitzpatrick ed. 1940) (footnote omitted). The majority today ignores that wisdom. Because the Court disregards its own precedent and its coequal partners in our tripartite system of Government, I respectfully dissent.

Concurring Gorsuch, joined by Thomas

People like Mr. Jarkesy may be unpopular. Perhaps even rightly so: The acts he allegedly committed may warrant serious sanctions. But that should not obscure what is at stake in his case or others like it. While incursions on old rights may begin in cases against the unpopular, they rarely end there. The authority the government seeks (and the dissent would award) in this case—to penalize citizens without a jury, without an independent judge, and under procedures foreign to our courts—certainly contains no such limits. That is why the Constitution built “high walls and clear distinctions” to safeguard individual liberty. Plaut v. Spendthrift Farm, Inc., 514 U. S. 211, 239 (1995). Ones that ensure even the least popular among us has an independent judge and a jury of his peers resolve his case under procedures designed to ensure a fair trial in a fair forum. In reaffirming all this today, the Court hardly leaves the SEC without ample powers and recourse. The agency is free to pursue all of its charges against Mr. Jarkesy. And it is free to pursue them exactly as it had always done until 2010: In a court, before a judge, and with a jury. With these observations, I am pleased to concur.