OPINION:
Administrative agencies have a tendency to play fast and loose with constitutional rights.
A good example of this can be found at the Securities and Exchange Commission, where prosecutors can accuse someone of violating SEC rules, and then the agency’s in-house judges consider hearsay evidence in deciding whether the SEC is right and the person is guilty.
It’s the legislative, executive and judicial functions rolled into one. Well-known entrepreneurs, including Elon Musk and Mark Cuban, decided last week to lend their considerable backing to a Supreme Court case seeking to unroll those powers and allow the traditional right of trial by jury to apply in all instances — not just when the SEC decides the Seventh Amendment to the Constitution applies.
Through a nonprofit group called the Investor Choice Advocates Network, or ICAN, Mr. Cuban and Mr. Musk filed a friend-of-the-court brief bashing the SEC for sometimes allowing jury trials while denying them at other times, depending on what the SEC thinks will lead to the better outcome for the agency.
“The unequal application of constitutional principles made possible by the SEC’s unfettered forum shopping discretion erodes faith in public institutions at a time of new lows in confidence in these institutions,” ICAN’s lawyers argued.
Whenever a dispute comes before a federal court, rigorous rules of evidence apply, and an independent judge and jury serve as the ultimate check against an agency that oversteps its authority. These protections vanish when the SEC can decide on a whim to deny them outright.
Mr. Cuban and several other of ICAN’s backers won their cases before juries in years past when such appeals were more common, creating an embarrassing situation for the SEC’s leadership. In response, the agency decided to funnel more decisions to in-house administrative law judges who, not surprisingly, delivered a Soviet-style 90% win rate on internal appeals. Innocent defendants facing such odds usually settle to avoid the prospect of a costly and futile challenge.
The high court decided in June that it would take up this issue after hedge fund manager George Jarkesy complained that an SEC administrative law judge imposed close to $1 million in fines while denying him access to a neutral arbiter.
In 2013, the SEC charged Mr. Jarkesy with misconduct because his fund lost money in the 2008’s global stock market crash — even though none of the fund’s investors complained. The SEC dragged out the proceedings for over a decade.
The SEC was flexing “tough” new powers granted by 2010’s Dodd-Frank law, which let the SEC sit in judgment over the accused and final review by a federal court of appeals available only at the very end of the process. Appellate judges are able to take up the matter ibkt under a legal standard overly deferential to agency findings.
Even so, the 5th U.S, Circuit Court of Appeals wasn’t impressed with the scheme. The judges agreed with Mr. Jarkesy’s lawyers that Congress couldn’t delegate judicial functions to the SEC because Congress has no judicial power to give away. The SEC refuses to take the loss.
That leaves it to the Supreme Court to shut down these sham agency hearings and restore the separation of powers meant to safeguard liberty.
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