Saturday, June 29, 2024

The Supreme Court's Other Business-Focused Decision: "SECURITIES AND EXCHANGE COMMISSION v. JARKESY ET AL."

Following on yesterday's post re: 'Chevron Deference': "Supreme Court delivers blow to power of federal agencies, overturning 40-year-old precedent"  the court also ruled in SEC v. Jarkesy, which, if you read some of the headlines will open the nation to rape, pillage and plunder by hedge funds. Or something:

In late November as the Court was about to hear the arguments in Jarkesy The Atlantic went with: "The Case That Could Destroy the Government"

CBS News: "Supreme Court strips SEC of key enforcement power to penalize fraud

New York Times: "The Supreme Court Neuters a Vital Public Watchdog"

Good grief, get a grip.

The decision was pretty straightforward: In many instances where regulators bring an  enforcement action, tribunals hear the case without juries. The Court said that is unconstitutional in some cases, that the Seventh Amendment guarantees a jury trial in a court.

Here's Bloomberg reporting:

US Supreme Court Curbs SEC’s In-House Judges in Fraud Cases

  • 6-3 decision is a blow to commission’s administrative system
  • Majority held that damages claims should go before a jury

The US Supreme Court curbed the Securities and Exchange Commission’s ability to press complaints before in-house judges, saying defendants have a constitutional right to make their case to a federal jury when the agency is seeking financial penalties.

The 6-3 decision could reduce the commission’s leverage to extract high-dollar settlements. It deals a blow to an administrative system the SEC once used to adjudicate more than 100 cases a year before scaling back amid legal challenges.

The ruling could ripple across the government, potentially affecting the Federal Trade Commission, Agriculture Department and Environmental Protection Agency. A Justice Department lawyer said during arguments that more than two dozen agencies now impose penalties through administrative proceedings and that only some of those bodies have the option to go to federal court instead.

Dissenting Justice Sonia Sotomayor said the ruling will unleash “chaos” across the government. 

The dispute is part of a Supreme Court term likely to have broad implications for federal regulators. The justices are also considering whether to overturn a precedent that gives agencies leeway when they interpret ambiguous congressional commands. The court’s conservative majority has been broadly skeptical of what it views as overreach by regulatory agencies.

The majority said that the SEC’s “antifraud provisions replicate common law fraud” and that it was “well established” that those types of claims should be heard by a jury.

“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Chief Justice John Roberts wrote for the majority. “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.”....


Here's the opinion, headed by the syllabus, via Cornell Law School's Legal Information Institute:

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.




certiorari to the united states court of appeals for the fifth circuit

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

In the aftermath of the Wall Street Crash of 1929, Congress passed a suite of laws designed to combat securities fraud and increase market transparency. Three such statues are relevant: The Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. These Acts respectively govern the registration of securities, the trading of securities, and the activities of investment advisers. Although each regulates different aspects of the securities markets, their pertinent provisions—collectively referred to by regulators as “the antifraud provisions,” App. to Pet. for Cert. 73a, 202a—target the same basic behavior: misrepresenting or concealing material facts.

  To enforce these Acts, Congress created the Securities and Exchange Commission. The SEC may bring an enforcement action in one of two forums. It can file suit in federal court, or it can adjudicate the matter itself. The forum the SEC selects dictates certain aspects of the litigation. In federal court, a jury finds the facts, an Article III judge presides, and the Federal Rules of Evidence and the ordinary rules of discovery govern the litigation. But when the SEC adjudicates the matter in-house, there are no juries. The Commission presides while its Division of Enforcement prosecutes the case. The Commission or its delegee—typically an Administrative Law Judge—also finds facts and decides discovery disputes, and the SEC’s Rules of Practice govern.

  One remedy for securities violations is civil penalties. Originally, the SEC could only obtain civil penalties from unregistered investment advisers in federal court. Then, in 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act authorized the SEC to impose such penalties through its own in-house  proceedings.....


A couple earlier posts on Jarkesy (who, as far as I can tell is guilty as hell):

April 2023
"Is the Securities and Exchange Commission Unconstitutional?"
There was a purpose behind all our blather about dismantling the Administrative State last year. If interested see after the jump.

November 2023
"SEC's in-house enforcement powers at risk in US Supreme Court case" 

If they are doing the job that Congress or the Courts are supposed to be doing they should be at risk.
The whole issue comes down to the vast amount of power that has been abandoned to the executive branch. If interested see April 2023's:
"Is the Securities and Exchange Commission Unconstitutional?"
And a slightly different case from 2016: "Appeals Court Holds That SEC Administrative Law Judges Are Unconstitutional"

And the American Academy of Arts & Sciences journal, D├Ždalus, Summer 2021 issue, tying all these cases together a few years ago, linked in 2022:

July 3, 2022:
Background On The Supreme Court's EPA/CO2 Ruling: The Administrative State

As part of  our look at what the Court actually decided in the decision released on June 30 we will be diving into the nuts and bolts of government bureaucracy, AKA the Administrative State, AKA The Swamp....

First though, a recapitulation of the introduction to last Thursday's "Supreme Court curbs EPA climate authority":

The headline is a bit of a mischaracterization. The Court ruled the EPA did not have the authority it claimed to have, a different situation from reining in an existing authority, and that the EPA could not simply adopt the Affordable Clean Energy rule; that the agency had exceeded its mandate under the Clean Air Act with the proposal  and that if Congress wanted the outcome of the Rule under CAA it would have to legislate same rather than have the administrative state simply write rules.

However, as the Washington Post quoted a proponent of the EPA's action:

Richard Lazarus, a Harvard environmental law professor, said in a statement that by insisting that an agency “can promulgate an important and significant climate rule only by showing ‘clear congressional authorization’ at a time when the Court knows that Congress is effectively dysfunctional, the Court threatens to upend the national government’s ability to safeguard the public health and welfare at the very moment when the United States, and all nations, are facing our greatest environmental challenge of all: climate change.”
It is not the Court's place to solve the problem of Congress being dysfunctional....

The people writing the hysterical headlines know all this is a big deal. They prefer to have bureaucrats who can't be fired by the voters make the rules, but the media peeps can't really come out and say that.

Legislators have the same preference with the additional motivations of offloading their responsibility and responsibilities, freeing up time for campaign fundraising and schmoozing with their future lobbyist employers.