Court rules SEC’s internal judges are unconstitutional

Brad Dress

This article by Brad Dress appeared in The Hill on May 18, 2022.

The 5th Circuit Court of Appeals on Wednesday 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.

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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