On June 30, 2023, the Supreme Court granted certiorari in Securities and Exchange Commission v. Jarkesy1 to review a decision by the Fifth Circuit rejecting key aspects of the Securities and Exchange Commission's (SEC or the Commission) administrative process and holding that the SEC's administrative law proceedings are unconstitutional. This case presents significant questions regarding the SEC's administrative practices and could potentially affect the administrative law process of many other government agencies.
Litigation Background
The underlying action dates back to 2011, when the SEC began investigating George R. Jarkesy Jr., the founding manager of two hedge funds, and Patriot28 LLC, the investment adviser that Mr. Jarkesy selected for the funds (the Respondents). The SEC filed an enforcement action against them alleging fraud under the Securities Act, the Securities Exchange Act and the Investment Advisers Act. During the course of the enforcement proceedings, the Respondents filed a separate action in the District Court for the District of Columbia, claiming that the SEC's administrative enforcement process was unconstitutional and asking the court to enjoin those proceedings.
The district court in the parallel federal court action dismissed the Respondents' claims for lack of subject matter jurisdiction, and the D.C. Circuit affirmed.2 The Respondents then continued with the SEC proceedings. Following an evidentiary hearing, the presiding SEC administrative law judge (ALJ) decided against the Respondents on the merits, finding that the Respondents violated, aided, abetted and caused violations of the anti-fraud provisions of the federal securities laws.3 The Respondents...
