The Implications of Jarkesy v. SEC for Administrative Tribunals

In May, the U.S. Fifth Circuit Court of Appeals vacated a decision of the Securities and Exchange Commission that hedge-fund manager George Jarkesy had committed securities fraud. The case, Jarkesy v. SEC, stuck down an important enforcement provision of Dodd-Frank and represents a potential strengthening of nondelegation and unitary executive principles. As a consequence, it could have far-reaching implications that go far beyond the securities laws.

The panel held that the SEC had violated the defendant’s 7th amendment right to a trial by jury because fraud is not a “public right” claim triable by administrative tribunal but a traditional claim that must be tried by a court. The panel also held that the law giving the SEC authority to choose between court trials and administrative trials of such claims constituted an unconstitutional delegation of legislative authority, in violation of the nondelegation doctrine. Finally, the court chipped away at the SEC’s independent status, holding that restrictions on removing administrative law judges only for cause infringed on the president’s vested authority to see that the laws be faithfully executed, in violation of the Constitution’s separation of powers.

What does Jarkesy mean for the future of administrative law? Was the Fifth Circuit following the principles laid down in recent Supreme Court precedent? Or has it struck out on its own, perhaps in an effort to spur the Supreme Court to further curtail the administrative state? The SEC has asked for en banc review. The decision creates an apparent split with the Ninth Circuit decision in Decker Coal v. Pehringer (2021) and could be headed to the Supreme Court.