SEC v. Jarkesy: A Victory for the Constitution

Insights From the Publisher: The Constitution is not a list of suggestions that we get to pick and choose from. It is the cornerstone of our democracy and must be followed, even when it’s challenging.

By Damon Elder, publisher and editor-in-chief, The DI Wire

On June 27, 2024, the Supreme Court affirmed a fundamental principle that we, as Americans, should all hold dear: the Constitution is the supreme law of the land. In the case of SEC v. Jarkesy, the court ruled 6-3 against the SEC, stating that the commission’s internal tribunals violate the Constitution and that the Seventh Amendment does, in fact, entitle a defendant to a jury trial.

It may seem logical that a governmental agency, much like American citizens, must follow the rules established by our Founding Fathers. Yet the SEC has been utilizing its own internal administrative law judges for years and in essence, acting as judge, jury, and executioner, ignoring the obvious issue of separation of powers. It may come as a surprise to no one that the SEC wins these cases nearly every time. With the Supreme Court’s new ruling, however, the SEC must now prosecute potential bad actors in a court in front of a jury rather than its own “court.”

Again, while this may seem like the obvious outcome, opponents have argued that this decision will throw the federal government into chaos, as Justice Sonia Sotomayor writes in her dissent.

Additionally, Justice Sotomayor states in her dissent that the court’s “decision upends over two centuries of settled Government practice” and that “dozens of agencies could be stripped of their power to enforce laws enacted by Congress.” Among these potential agencies, she lists the Occupational Safety and Health Administration, or OSHA; the U.S. Environmental Protection Agency, or EPA; and the U.S. Department of Agriculture, or USDA, and others.

This argument, however, misses the fundamental point. First, as Justice Neil Gorsuch articulates in his concurring opinion, the court “hardly leaves the SEC without ample powers and recourse. The agency is free to pursue all of its charges against Mr. Jarkesy. And it is free to pursue them exactly as it had always done until 2010: In a court, before a judge, and with a jury.” The SEC retains the ability to bring charges against individuals like Jarkesy; the only difference is that it must now do so in a court of law before a jury of peers.

Additionally, Justice Sotomayor states in her dissent, “Today’s decision is a power grab… It prescribes artificial constraints on what modern-day adaptable governance must look like.” She continues, stating, “There are good reasons for Congress to set up a scheme like the SEC’s. It may yield important benefits over jury trials in federal court, such as greater efficiency and expertise, transparency and reasoned [decision-making]…”

This prioritization of administrative convenience over constitutional rights is a dangerous path. It may be true that this new ruling might be inconvenient for the SEC and others, and it may cost them more in terms of time and resources. While the streamlining of processes and the efficient use of resources is important, they cannot come at the cost of our fundamental liberties. The Seventh Amendment’s guarantee of a jury trial is not a mere procedural technicality – it is a cornerstone of our justice system. It works to ensure that all Americans have the opportunity to have their cases heard by a jury of their peers, an essential safeguard against government overreach and potential bias.

The argument that upholding constitutional rights might be disruptive or costly is not new. Throughout history, there have been numerous instances where adhering to the Constitution required significant adjustments and even sacrifices. The New Deal era, for example, saw a clash between the executive and judicial branches over the constitutionality of various economic programs. While some programs were ultimately deemed unconstitutional, this period led to a recalibration of the balance of power between the branches and a deeper understanding of the limits of federal authority. Even the passage and repeal of Prohibition similarly demonstrated the complexities and challenges of enacting and enforcing constitutional amendments, with significant social and economic consequences.

The court’s decision in SEC v. Jarkesy is a necessary reminder that the Constitution is not a list of suggestions. It is the bedrock of justice upon which our nation is built. We cannot pick and choose which rights to uphold based on convenience or perceived practicality. As financial professionals, we understand the importance of rules and regulations in maintaining order and stability in our industry. Similarly, the Constitution provides the framework that ensures the stability and integrity of our republic.

The Supreme Court’s ruling is a victory for the rule of law and a reaffirmation of our constitutional principles. While the decision may necessitate some adjustment in how the SEC enforces its regulations, these changes are a small price to pay for upholding the fundamental rights and liberties that define us as Americans. The Constitution should not be viewed as a barrier to progress but as a blueprint for a just and equitable society. By following it, even when it is inconvenient, we ensure the continued vitality of our republic and the protection of our freedoms for generations to come.

Damon Elder is the publisher and editor-in-chief of The DI Wire, as well as president of Spotlight Marketing Communications. He has worked in the alternative investments industry for nearly 20 years. He was previously a congressional aide and political consultant before finding honest work in the private sector. Agree or disagree? Share your views with him at damon@thediwire.com. Thoughtful replies may be published in The DI Wire.

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