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The Courts United States Government

Court Rules SEC's Internal Judges Are Unconstitutional (thehill.com) 100

The 5th Circuit Court of Appeals has ruled the Securities and Exchange Commission (SEC) is denying defendants their constitutional right to a jury trial by putting them in front of its own internal judges. From a report: In a 2-1 ruling, the court ruled for George Jarkesy and Patriot28 LLC, who sued the SEC in 2011 after the agency imposed a $300,000 fine and other punishments in a securities fraud case. Judge Jennifer Walker Elrod wrote in the majority opinion that the SEC violated the Seventh Amendment's right to a jury trial by bringing defendants before in-house judges and allowing the agency to "act as both prosecutor and judge." Congress also unconstitutionally delegated power to the SEC to act as a legislative body, Elrod wrote.

"'We the People' are the fountainhead of all government power. Through the Constitution, the people delegated some of that power to the federal government so that it would protect rights and promote the common good," Elrod said. "But that accountability evaporates if a person or entity other than Congress exercises legislative power." In a dissenting opinion, Judge Eugene Davis disagreed, saying the right to a jury trial did not pertain to administrative proceedings and that the SEC was enforcing laws and statutes in the public interest.

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Court Rules SEC's Internal Judges Are Unconstitutional

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  • by SuperKendall ( 25149 ) on Thursday May 19, 2022 @10:29AM (#62549286)

    saying the right to a jury trial did not pertain to administrative proceedings and that the SEC was enforcing laws and statutes

    So which is it? Are we enforcing laws which requires trial by jury, or are we just doing administrative work not based on law?

    • by Mspangler ( 770054 ) on Thursday May 19, 2022 @10:45AM (#62549386)

      $300,000 fine? That sounds like law requiring a jury trial to me.

      "You filled out form Foo instead of form Bar, so your application is denied" is an administrative issue not requiring a jury trial.

      • Re: (Score:2, Insightful)

        by Smidge204 ( 605297 )

        > $300,000 fine? That sounds like law requiring a jury trial to me.

        Since when does a fine require a jury trial? Or is it the size of the fine that matters... in which case, since when does a fine require a jury trial?

        I mean you can be fined for all sorts of things and never get a jury trial. Unless you plan to make traffic tickets and littering fines unconstitutional I don't see the logic here.
        =Smidge=

      • It Depends (Score:5, Insightful)

        by Roger W Moore ( 538166 ) on Thursday May 19, 2022 @11:29AM (#62549592) Journal
        It depends on the situation. For example, if you agreed to file some paperwork every year in order to be allowed to take your company public and then failed to do so that could be argued to be an administrative issue. Lots of organizations have rules like this that you have to agree to and if you break the rules there is an associated fine or other sanction that is decided on through some administrative procedure. This is a useful system to have because it is often much cheaper and faster than a full court case.

        However, you always have the option to appeal any decision taken by the organization to the courts where a judge and jury get to decide whether any such sanction is fair and reasonable given what you agreed to. Perhaps that is what is needed here? Allow the SEC its own internal procedure to levy fines but preserve the right to challenge any such decision in court.
    • by ToasterMonkey ( 467067 ) on Thursday May 19, 2022 @12:50PM (#62549934) Homepage

      saying the right to a jury trial did not pertain to administrative proceedings and that the SEC was enforcing laws and statutes

      So which is it? Are we enforcing laws which requires trial by jury, or are we just doing administrative work not based on law?

      Here's the seventh amendment, which the court based its opinion on.

      In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States, than according to the rules of the common law.

      Now you have to define suits at common law.
      https://law.justia.com/constit... [justia.com]

      Omission of provision for a jury has been upheld in a number of other cases on the ground that the suit in question was not a suit at common law within the meaning of the Amendment, or that the issues raised were not peculiarly legal in their nature.

      Now we have to go dumpster diving through all those cases, and I'd love to but I have to get back to work :(

    • what makes you think administrative acts are not lawful?
      REMIND you that the Constitution grants to Congress the power to create bodies and confirm officers thereof to administer the law. ADMINISTER.
      Fraud is always unlawful and acts which precipitate or enable most certainly CAN be subject to administrative punishment.
      Just ask the IRS.
  • by SirAbbadon ( 6783790 ) on Thursday May 19, 2022 @10:31AM (#62549302)
    "the right to a jury trial did not pertain to administrative proceedings and that the SEC was enforcing laws and statutes in the public interest." Um... that's the definition of the need for a trial by jury. A defendant says he's innocent. His government says he's guilty. What possible other reason could a citizen have to a trial by jury, but to make sure his government isn't unduly exercising control and meting out punishments that shouldn't even exist in the first place? All of the alphabet agencies need to be reworked. They should not be able to levy fines (punishment) without giving each case a hearing in a court of law. If I get a traffic citation, I still get to appear before a judge and plead my case. Maybe trial by jury it's necessary, but in-house, unelected judges who are part of the same organization telling you that you're guilty is not just.
    • If I get a traffic citation,

      In many jurisdictions, that's an administrative judgement as well. No jury.

    • At least it could provide consistency if you are in the camp that doesn't agree with forced arbitration clauses.
    • by DamnOregonian ( 963763 ) on Thursday May 19, 2022 @10:52AM (#62549424)

      If I get a traffic citation, I still get to appear before a judge and plead my case.

      That is almost always an administrative proceeding.
      How a "judge" is appointed to a traffic court can vary by jurisdiction, and you have no right to a jury.

      This is really a hit against the way the US does regulation, in general.
      Where previously you may have only gotten a fine in an administrative proceeding, you will now have to face criminal charges.
      I'm not sure this is a victory for anyone.

  • In the executive branch of the federal government and of the states, a great many proceedings are held with an administrative law judge. Would this ruling totally end that practice?

    • In the executive branch of the federal government and of the states, a great many proceedings are held with an administrative law judge. Would this ruling totally end that practice?

      That was my first thought, as well. Quite a few Executive Branch agencies have ALJs for enforcing regulations. Getting rid of them is going to bog down the court system even more.

  • .. next.

  • It took decades before someone challenged administrative courts.

    Simple fix: add a jury.

    • Well it was the kangaroo court called the 5th circuit, the one most often found in violation with the constitution and most often corrected by the supreme court.

  • by Revek ( 133289 ) on Thursday May 19, 2022 @10:48AM (#62549398)
    Now they have no power at all to regulate. This forces them to file lawsuits against billion dollar companies doing trillions in transactions in federal court just to fine them a small rounding error on the illegal profits. In other words they SEC is now operating exactly as the FED and market makers intend for it too.
    • Love it. Just wanted to pop in for a bit of celebratory nagging.

      What was it they always said about nothing to hide and doing nothing wrong?

      Looks like the SEC was *BREAKING THE LAW*. Never forget that when they come acting all puffed chest to you. THEY BREAK LAWS.

      Can't even honor the thing they are supposed to protect. They literally are the evil they were there to protect.

    • From description in the the summary, it seems like the SEC was making their own regulations and fining people for violating those regulations. If that is indeed what was happening, then what the majority said makes perfect sense to me: they're bypassing the legislative process by creating what are functionally laws and they are bypassing the judicial process by holding their own trials for people found in violation. The court decided that this was illegal. If a government organization cannot adequately func
      • they're bypassing the legislative process by creating what are functionally laws

        No, the ability to determine the details of regulations within a specific scope (a.k.a. executing the law) was delegated to the agencies by explicit acts of Congress.

        • by DarkOx ( 621550 )

          Right now its time to scrap Chevron entirely. Congress should not have the ability to delegate its authority there is nothing in the constitution that grants them that; the very fact that Congress was given the explicit authority to establish courts suggests that if there was any intent they should have the ability to create little special use legislatures that would have been mentioned.

          None of these agency should be able to make their own rules - not FTC, FAA, FCC, SEC, FDA, CDC, etc none of them. They re

          • If you can't choose whether to delegate then it's not really under your authority, is it? There's really no chance that Congress members know enough about whether to pass individual regulations - especially across such a wide range of subject matter.

    • What about the IRS? They got lots of rules and fines too... are those unconstitutional as well?

  • by Virtucon ( 127420 ) on Thursday May 19, 2022 @11:22AM (#62549534)

    Thank you for this ruling!

    Now get rid of the IRS Tax courts and the FISA Courts.

  • by Whateverthisis ( 7004192 ) on Thursday May 19, 2022 @11:30AM (#62549598)
    I hope this gets challenged and goes to the Supreme Court. There is a bureaucracy power creep where the Executive branch kind of bleeds into the Legislative branch, where unelected officials can set "rules" and "regulations" and "administrative proceedings" that have penalties associated with them that look an awful lot like laws; to close for my personal opinion. The SEC is one in particular that can very quickly become authoritarian.

    I like this ruling quite a bit, and even if SCOTUS doesn't take it up, then by default this ruling stands, which reigns in the power of the bureaucracy over everyone.

    • You're that confident it would stand in SCOTUS?
      • You know I considered this exact question before I posted, and yes I do. Regardless of how much the media tries to portray the SCOTUS as divided amongst party lines for highly contentious cases, most justices throughout history believe in the rule of law and the Constitution and it's separation of powers. At the heart of this issue is a section of the Dodd-Frank Act, which gave the SEC the right to set rules (legislate), enforce those rules (executive), and adjudicate those rules (judiciary). In effect Co
        • A clear, united SCOTUS supporting this ruling would be amazing. If you are right, this is what we should expect!

        • Yeah, no. The current SCOTUS firmly believe GOP over the constitution. They will twist the words of the constitution to whatever absurd notions they need to to defend their preconceived notions. They have been specifically chosen for this cognitive bias.

          • That's sad that you think that. It's like you think the GOP is the enemy. We're all Americans man, and it's ok to have different opinions and debate!

            And your opinion of the SCOTUS isn't really accurate; that's a media portrayal. This recent leak around this abortion case is one of the worst things to happen to the Supreme Court because it wasn't a final opinion; just a draft and one up for debate at that. It's framing the SCOTUS as one thing when in fact it was in the middle of it's process, still i

        • At the heart of this issue is a section of the Dodd-Frank Act, which gave the SEC the right to set rules (legislate), enforce those rules (executive), and adjudicate those rules (judiciary).

          At the heart of this issue is the modern Federal Government. Administrative Law Judges have existed across multiple agencies since 1946.

          So yeah, assuming the justices see it as Congress effectively creating a separate judiciary and legislative branch for this aspect of society, then yes I see SCOTUS as shutting that down.

          Well this structure has been in place and considered constitutional for almost 80 years so it's underlying constitutionality shouldn't be in doubt... However the current SCOTUS is a bit of a joke so who knows how this will turn out.

          • "It's been legal for this long, so it's Constitutional" isn't a good argument. That's the same argument used by the Democrats to allow slavery, Jim Crow, and plenty of other nasty policies against people of color in the past.

            What's to say that they weren't Constitutional but upon re-evaluation of the situation and their existence, that people realize "Oh, yeah... No, that's not right, let's fix that"?

            Sorry, but "We've done it like this forever now, why change it" is not a defense of un-Constitutional action

            • "It's been legal for this long, so it's Constitutional" isn't a good argument. That's the same argument used by the Democrats to allow slavery, Jim Crow, and plenty of other nasty policies against people of color in the past.

              Ah yes, the whole "lets pretend the parties never switched places on racism" argument.

              What's to say that they weren't Constitutional but upon re-evaluation of the situation and their existence, that people realize "Oh, yeah... No, that's not right, let's fix that"?

              Sorry, but "We've done it like this forever now, why change it" is not a defense of un-Constitutional actions by the government.

              Precedents can certainly change, and they should when they're unjust. But the first job of the legal system is to be somewhat consistent. A lower court blowing up a major government agency is hardly providing a stable foundation to build on.

              • Ah yes, the whole "lets pretend the parties never switched places on racism" argument.

                Ah yes, the debunked "southern strategy" argument. The parties never switched. Quit lying. Pick up a history book. Learn to debate. You are ascribing something I was not saying in the slightest. I was historically correct, The established facts are that the Dems historically have been more racist and have stood against civil rights more than any other party, a civil war, their voting and legislative records prove it beyond a shadow of a doubt.

                • Ah yes, the whole "lets pretend the parties never switched places on racism" argument.

                  Ah yes, the debunked "southern strategy" argument. The parties never switched.

                  Debunked? Since when is it debunked? And on what evidence are you basing the claim that the parties never switched?

                  Quit lying. Pick up a history book. Learn to debate. You are ascribing something I was not saying in the slightest.

                  What were you not saying in the slightest? That the parties never switched places on racism? Given that you responded by literally arguing for that statement I think I accurately characterized your argument.

    • by splutty ( 43475 )

      And can we please do 'arbitration' next? :P

    • I hope this gets challenged and goes to the Supreme Court. There is a bureaucracy power creep where the Executive branch kind of bleeds into the Legislative branch, where unelected officials can set "rules" and "regulations" and "administrative proceedings" that have penalties associated with them that look an awful lot like laws; to close for my personal opinion. The SEC is one in particular that can very quickly become authoritarian.

      I like this ruling quite a bit, and even if SCOTUS doesn't take it up, then by default this ruling stands, which reigns in the power of the bureaucracy over everyone.

      Legislative bodies set the guidelines for the regulation, agencies fill in the details.

      If you instead insist that legislative bodies write each individual regulation then regulations will be out date by decades and when they do get updated they'll be authored by corporate lobbyists.

      The legislative branch granted certain rule making powers to federal agencies because it's the only way to make a system that functions.

  • The con artist and his corrupt cabal will be able to rip people off at will and not have to worry about being penalized because it will take so long for any enforcement action to take place.

    Sounds like a Republican wet dream. Unlimited corruption without consequences.

  • by schwit1 ( 797399 ) on Thursday May 19, 2022 @12:20PM (#62549796)

    Congress didn't tell SEC when to use ALJ vs a jury trial, and the SEC was just making it up. Executive agencies' job it to enforce the law not make the law.

    The court did right in telling Congress to be more precise and complete in its laws.
    The SEC should have gone back to Congress for clarification. Until then, they should have let the defendant decide the judge/jury question.

  • I have a sneaking suspicion that this is only going to make people charged with securities fraud (hi Elon) more noteworthy. Before they would go before a sleepy administrative court with the SEC, now they're going to be in much more public federal courts where the press is more likely to take notice.

  • We enter into "forced arbitration agreements" all the time, such as when you install just about any software and click "yes" to agree to the fine print. Many employers insert forced arbitration clauses into their employment agreements. In some particularly egregious cases, cases of rape were sent to arbitration through these agreements. https://www.usatoday.com/story... [usatoday.com]

    It seems to me that this ruling should apply to forced arbitration, for the same reasons the court cited for applying it to the SEC.

  • My initial take on this is that surely the SEC isn't a court of law, but then I found this: https://www.sec.gov/page/aljse... [sec.gov] Not quite sure what to think, to be honest. "Administrative law" seems a bit confusing to me and exactly to the point of this decision: is what the SEC does a matter of administration, checking that the law is being followed (e.g. laws like Frank-Dodds), or is the SEC a sort of court of law in its own right? Confusing, and a bit troubling, because what the SEC does is vitally import
  • I want to go before a judge each time I'm late.

  • Be careful what you wish for.

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