SCOTUS to Hear Oral Arguments Today in Case That Threatens to Upend Use of ALJs

The U.S. Supreme Court is set to hear oral arguments this morning in Securities and Exchange Commission v. Jarkesy, a case that challenges the constitutionality of the use of administrative law judges by the SEC and other federal agencies.

As reported by The DI Wire in March 2023, the SEC petitioned the high court to review the U.S. Court of Appeals for the Fifth Circuit’s ruling in the case, which determined that the agency’s use of in-house courts to bring a securities fraud case against a hedge fund manager was unconstitutional.

The case involves hedge fund manager George Jarkesy, who the SEC had fined and barred from the industry after determining he had committed securities fraud.

The case represents the latest legal attack against the actions of the SEC, which enforces various federal laws intended to protect investors. The Supreme Court, which has a 6-3 conservative majority, has signaled skepticism toward expansive federal regulatory power.

The justices took up the Biden administration’s appeal of the lower court’s Jarkesy decision that struck down certain SEC enforcement proceedings as “unconstitutional for violating the right to a jury trial and infringing on presidential and congressional powers.” In 2018, the justices faulted the way the commission selected its in-house judges, and in April allowed targets of actions by the SEC and other regulators to immediately mount challenges to agency processes in federal court.

The Supreme Court is expected to decide:

• Whether the statutory provision that empowers the SEC to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violated the Seventh Amendment of the U.S. Constitution.
• Whether statutory provisions that authorized the SEC to choose to enforce the securities laws through an agency adjudication instead of filing a district court action violate the nondelegation doctrine.
• Whether Congress violated Article II of the Constitution by granting for-cause removal protection to ALJs in agencies whose heads can only be removed by the President for cause.

The ultimate decision by the court could undermine the long-standing use of administrative law judges throughout the federal bureaucracy.

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