On May 18, 2022, the U.S. Court of Appeals for the Fifth Circuit issued its opinion in Jarkesy v. SEC, holding that:
(1) the U.S. Securities and Exchange Commission’s in-house adjudication of petitioners’ case violated their Seventh Amendment right to a jury trial;
(2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power, in violation of Article I’s vesting of “all” legislative power in Congress; and
(3) statutory removal restrictions on SEC administrative law judges violate the Take Care Clause of Article II.
If this holding stands, it could have far-reaching ramifications. The SEC is just one of many agencies within the executive branch that uses ALJs to streamline the adjudication of its enforcement actions. While administrative adjudication is cost-effective for the government, proponents of small government and the defense bar alike have criticized the practice, as it places the roles of prosecutor, judge, and jury in the hands of the same agency. For the SEC, this has proved to be particularly effective, given that (according to the Wall Street Journal) it has prevailed in 90% of the cases brought in its own administrative courts. We examine the Fifth Circuit panel’s ruling and some potential ramifications.