Like it has with many others, the U.S. Securities and Exchange Commission filed administrative proceedings against George Jarkesy Jr. in 2013. Unlike many others, however, Mr. Jarkesy did not sit back and accept the SEC’s authority to proceed before an administrative law judge (ALJ). He initially challenged the constitutionality of the SEC proceedings in federal district court, but the U.S. Court of Appeals for the D.C. Circuit held that Mr. Jarkesy had to first raise his arguments before the commission itself, which he did. Years of litigation followed, until the U.S. Court of Appeals for the Fifth Circuit last week granted him the relief that he had long sought.
On May 18, 2021, the Fifth Circuit held in Jarkesy v. SEC that the SEC violated the Constitution by filing an enforcement action seeking monetary penalties for fraud before an ALJ. Specifically, it held that Jarkesy and the other defendants were deprived of their right to a jury trial; that Congress impermissibly delegated legislative powers by granting the SEC unfettered discretion in choosing whether to bring matters before ALJs; and that restrictions on the removal of SEC ALJs constricted the president’s constitutionally mandated oversight over inferior government officers. Beyond its immediate impact on the SEC, Jarkesy will have significant implications for defendants in other SEC administrative proceedings in the Fifth Circuit and potentially beyond, and for other federal agencies that utilize ALJs.
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