SEC v. Jarkesy - Post-Decision SCOTUScast

On June 27, 2024, the U.S. Supreme Court issued their 6-3 opinion in SEC v. Jarkesy. The Court held that when the Securities and Exchange Commission seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.
Please join us in discussing the decision and its future implications.

Featuring:
Devin Watkins, Attorney, Competitive Enterprise Institute

Episode Transcript

Speaker 1 (00:02):
Welcome to sco Discast, a project of the Federalist Society
for Law and Public Policy Studies. Our contributors joined us
from around the country to bring you expert commentary on
US Supreme Court cases as they are argued and the
decisions are issued. The Federalist Society takes no position on
particular legal or public policy issues. All expressions are those

(00:23):
of the speaker. Hello, and welcome to scot Discust. I'm
your host, Kyle hammerniz On, behalf of the Faculty division
of the Federalist Society. We are here today to discuss sec.
Versus Jarkaesi, in which the Supreme Court issued a six
' to three decision on June twenty seventh, twenty twenty four.

(00:45):
It is my honor to introduce our guests today, Devin Watkins.
Devon is an attorney at the Competitive Enterprise Institute. Devin
previously worked at the Cato Institute as a legal associate
and intern at the Institute for Justice. And with that,
I like to turn things over to Devin to get
us started.

Speaker 2 (01:06):
I'm happy to be here, so I'm here to talk
about Jarkasey, which at least in my opinion, is one
of the most important Supreme Court decisions in a very
long time. There are probably two critically important Supreme Court
decisions this term on the size, scope and power of
the administrative state. Of course, the overturning of Chevron has

(01:30):
enormous implications for the rule making process that all federal
agencies go through. But in many ways Tarkasias is important
for the adjudication process, is as the overturning of Chevron
was for the rule making process. This is the other
half of agency's formal powers. So in this case, let

(01:52):
me go into a little bit of the kind of
factual background. At least according to the ALJS, is found
by the SEC. Darkasey had claimed to brokers and investors
that some prominent accounting firm would audit the hedge fund,
that some prominent investment bank would serve as the fund

(02:13):
primary broker, and that half the funds would be invested
in life insurance policies. The LJ found that no audit
had taken place, no prime vocage account was open, and
only twenty percent was invested, and so he The ALJ
and the SEC found that Jarkisey had committed securities fraud.
Now I don't know if these facts are true or false,

(02:34):
and there was no jury involved in this, despite the
fact that Darkasey had asked for one. The Fifth Circuit
reviewed the findings of the SEC and LJ and they
found that there were three problems with the process that
the SEC went through. Specifically, that the SEC had the
discretion to bring the case either within federal court or

(02:57):
with through his administrative process, but that there was no
intelligible principle telling the SEC which one it should go for,
and so it violated the non delegation doctrine for the
SEC to make that choice without being told by Congress
how it should be making that choice. The second problem

(03:19):
was that there was a four cause restriction on the
administrative law judges removal that violated Article two in the
Separation of Powers. And lastly, that Jarghesi was entitled to
a jury trial on the Seventh Amendment. Now, the Supreme
Court only decided that third question specifically on the Seventh
Amendment and left the other two to go back to

(03:42):
the Fifth Circuit in the future cases. So those two
are still live issues in future cases. But because the
Supreme Court was able to resolve it entirely on the
Seventh Amendment rouds that is then entire basis for the
Supreme Court's opinion, So I'm going to be focusing on
that aspect of it here. So the Seventh Amendment says,

(04:02):
in suits a common law, where the value and controversy
shall exceed twenty dollars, the right of trial by jury
shall be preserved. So the key question then in this
case is what is a suit at common law? According
to the sec any administrative action brought in its administrative

(04:24):
forum is not a suited common law because a suited
common law meant an in federal court. If you don't
go to court, it's not a suit, and therefore it
doesn't matter. Under the Seventh Amendment. We don't need a
jury as long as we don't bringing it outside of
an Article three court. Now, there's some problems with this.

(04:46):
If that were actually the case, then Congress could effectively
eliminate the Seventh Amendment right and just assign everything to
administrative forums or outside courts and just eliminate the right
to a by jury in all actions. And that seems
rather absurd given the history of the Seventh Amendment. The

(05:08):
Seventh Amendment was created in response to certain abuses by
the English government that occurred shortly before the American Revolution.
There was a lot of restrictions on trading, specifically that
certain goods and ships had to go through Everything had

(05:29):
to go through England, had to be bought and sold
certain goods through England before it could come to or
be sold by the American colonies. This caused prices to
go up a lot more than if they had sold
directly to foreign governments or foreign individuals, and there was
a lot of Americans were upset by that, and because
of that, there was a lot of Americans that committed

(05:49):
smuggling and kind of avoided those restrictions. The British government
then brought smuggling charges against American colonists, and the American
colonists who sat on juries were rather hesitant to convict
their fellow American colonists of these crimes. They were very

(06:10):
skeptical and kind of really pushed back against a lot
of the extravagance and a lot of the prosecutions. And
there was a lot of complaints by the British governors
that were selected by the English authorities about this. So
what the English Parliament decided to do is transfer all
of these from common law courts to admiralty courts that

(06:33):
had no jury trials and therefore bypassed the right to
a jury and just have individuals that were selected by
the British government deciding if these people were guilty in
issuing fines. That was the history that then led to
the Seventh Amendment that protected these kind of actions and
ensured that a jury trial would be allowed. Now it

(06:55):
does say ensues a common law to the founding, there
was kind of three different areas of law where different
cases could be brought. You could bring cases in the
common law courts, the courts of equality, equity, and the
courts of animalty. The animalty courts are for things that

(07:18):
occur on the high seas. There's a natural reason to
not have a jury in these cases because the actions
occur to the high seas. There is no local jury
in the middle of the ocean that you can then
call forth to being to decide issues of fact. Issues
of equity was another exception that is distinguished from court

(07:40):
from common law courts. In these cases, you're not trying
to punish anyone. You're not taking property from them that
they own because they committed some wrongdoing. Instead, you're saying
what needs to happen in the future to follow the law,
and you're trying to set things right because you're not
actually punishing anyone, and there's no decision as to some

(08:05):
bad act that occurred in the past. The ability for
the government to kind of abuse that process even without
a jury is a lot less because any decisions made
would not generally apply just to the individuals involved, but
would then be applicable to anyone in society under equal facts.
And so in those cases ad Multy and Equity, the

(08:28):
founders not believe that a jury was required, but they
did want to preserve it as suits of common law.
Now suits at common law only meant cases brought in court.
It can be easily evaded. Instead, at least my opinion
is that suits of common law meant suits that at
that time would have been brought in common law, meaning

(08:51):
that there are suits for damages or to remedy past
harms by taking property that they that people had and
giving it to those that were harmed, or to the government.
Any of these kind of cases or suits at common law,
and those kinds of cases we need to have a
jury trial, and that's mostly what the majority held in

(09:12):
this case. One of the key problems is that there
are some cases what's called public rights cases, where there
was no jury involved in the process. Now, a lot
of these are cases where even I would not characterize
them as suit as a common law, although they might

(09:33):
involve money. An example might be a federal benefit program.
The government is handing out money, and it's not taking
money from people that is properly their The adjudication of
that is not a suit at common law. There's no
punishment involved in making such a decision, and sol though

(09:53):
it involves money, it can be done outside of the
jury process. There's a variety of other areas that the
court identifies, such as certain immigration law, some tax law.
For instance, some tax collector is taking money in for
the government, and although they take the money into the government,

(10:13):
they then fail to pass it along to the treasury.
The government can go and say, look, you use that
money to buy the house. We're now going to sell
that house and collect the money that is properly are
as the government. We're not just punishing you because of this,
We're just trying to take the money that the government
already owns. This is our money. And so in those

(10:35):
kind of what's called public rights cases. No jury needed
to be involved, and those all started perfectly acceptable. You know,
some of these public benefits, some tax cases, stuff like that.
There were several of these kinds of cases. The problem
is that in the nineteen seventy seven case of Atlas Roofing,

(10:58):
the Supreme Court expanded that public rights doctrine to include
not just those kind of traditional areas where most people
would say that's not a lawsuit at common law, but
tried to then claim that any time the government is
exercising sovereign power related to a federal statute that gives

(11:23):
the government that power, that it automatically then becomes a
public right, and therefore the government can bypass the jury
trial right. I actually filed a brief in darkase and
asked the Supreme Court to overrule Atlas Roofing. The majority
declined to do so. Instead, what they decided to do

(11:44):
is distinguish Atlass Roofing and say that the Osha Act
did not involve the kind of traditional common law actions
like involved in this case. In this case, which involved
securities fraud, the court found it was very similar to
common law fraud that would have been brought in a

(12:04):
common law court at the founding and therefore was clearly
a suit at common law at the time of the founding,
and then distinguished the Osha Act and said, that's an
entirely separate scheme. It was unrelated to a lot of
things that occurred at the founding, and therefore we don't
need to deal with that, this roofing and this constitutionality

(12:24):
right now. Instead, it relied upon two cases Toll the
United States and Grand Faresea bian Norberg. This was in
nineteen eighty seven. In nineteen eighty nine, case Told dealt
with the Clean Water Act and a bind that was issued.
The court there said a bine under the Cleaning Water

(12:45):
Act was very similar to an action in debt at
common law and therefore would fall within the Seventh Amendment.
And in Grand Faresea, the court said that a fraudulent
and conveyance actions are legal in nature sure and require
a jury trial. So it was those cases that the

(13:06):
majority primarily relied upon to say that a securities fraud
case is similar enough to assuit a common law that
it needs to have a jury trial to be able
to be functional, and this and often will push the
case out of administrative forum because administrative forums don't have

(13:27):
jury trials. The ability to bring these cases in administrative
and forum is going to be limited. Instead, a lot
of these cases are going to then be brought in
Article three courts where they can have jury trials. And
these cases really should be an Article three court, so
you have a real jury that is going sorry, a
real judge that can evaluate these under Article three as

(13:49):
well as a jury. I think both of those are true.
Although this case focused specifically on the right to a
jury trial, now, the dissent primarily focuses on the fact
that although the Court distinguished at List Roofing, according to
this assent, it shouldn't have that Atlas Roofine really controlled
this case. That this case. While the majority said that

(14:11):
the remedy at issue issuing a monetary fine is what
causes this to require a jury trial under the Seventh Amendment,
the sense said, look, Atlas Roufine had a fine just
like this one. And it said that the security and
the Descent claims that the securities fraud statue is the
creation of a new statute, not the same as the

(14:35):
common law fraud because it doesn't require any kind of
injury to private parties. It is brought by the government
in its sovereign capacity and directly by the government. It's
not a litigation between two private parties. Now I have
some you know, I can see that as sense point.
In some ways, I agree that this is not that

(14:56):
much different between Atlas Roofine. This is why we asked
that Alice Roufing be overruled. We think that Lias Rufe
is wrong to decide that the Supreme Court was kind
of careful not to say whether Atlas Ruvine was rightly decided.
In fact, they suggested, and that Alice Ruvie may already
have been overturned, but they don't actually decide that here,

(15:19):
which is kind of strange. Usually the Court is clear
what cases are good law and what cases are it's
not good law when it's citing those cases. But the
Descent also takes issue with the fact that the majority
is kind of making that kind of distinction where it says,
we're going to distinguish Atlas Rufine, but we're not going
to say if Atless Rufine is good law. So I

(15:41):
can understand why the Ascent is making those claims. I
would just say that even if the Ascent is right,
I think the Court should have overruled at this Rufie.

Speaker 1 (15:52):
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(16:13):
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(16:33):
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Speaker 2 (16:45):
This has been a FEDSOC audio production.