The U.S. Supreme Court has recently agreed to hear a case that will determine whether certain administrative trials conducted by the U.S. Securities and Exchange Commission (SEC) violate the Seventh Amendment’s right to a jury trial. This development has been reported by reputable sources such as Reuters, Bloomberg Law, and a press release from the Institute for Justice, a nonprofit public-interest law firm.
The legal controversy surrounding SEC administrative trials and the right to a jury trial emerged when the 5th U.S. Circuit Court of Appeals in New Orleans ruled in May 2022 that these trials infringe upon the constitutional right to a jury trial when civil penalties are sought. In addition to this ruling, the appeals court also concluded that Congress had unconstitutionally delegated legislative power to the SEC by granting it the authority to decide whether to pursue cases in court or within the agency itself. Furthermore, the court found that the SEC’s administrative law judges had been appointed in violation of the take care clause due to statutory limitations on their removal.
All three of these issues have now been brought before the U.S. Supreme Court, as confirmed by the SCOTUSblog case page. The potential implications of a decision against the SEC are significant, with Reuters noting that it could undermine the overall power of federal agencies. Bloomberg Law adds that this case contributes to a term in 2023-24 that already carries broad implications for federal regulators, as the justices are also set to consider the constitutionality of the Consumer Financial Protection Bureau’s funding system and whether to overturn a precedent that allows agencies flexibility in interpreting ambiguous congressional commands.
The Institute for Justice, which filed a similar case challenging the U.S. Department of Labor’s in-house agency courts, expressed its perspective in the press release. Rob Johnson, a senior attorney for the Institute, emphasized that the Constitution guarantees the right to trial by jury, not trial by a bureaucratic entity.
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The specific case under consideration revolves around hedge fund creator George R. Jarkesy Jr. and his investment adviser, Patriot28, who were subject to a civil penalty of $300,000. They were accused of misrepresenting fund safeguards and inflating the value of the funds’ assets to increase investor fees. Furthermore, Patriot28 was ordered to disgorge approximately $685,000 in ill-gotten gains.
As the Supreme Court prepares to address this pivotal case, its decision will have far-reaching consequences for both the SEC and federal agencies in general. The ruling will determine the extent to which administrative trials can proceed without infringing on individuals’ rights to a jury trial. It is a case that highlights the delicate balance between regulatory authority and constitutional safeguards, and legal experts, government agencies, and individuals across the nation will closely watch its outcome.
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