A Judicial Ruling Challenges the SEC’s Illegal Power

The separation of powers of the United States Constitution ensures that the power of government will never be concentrated in the hands of a few. But ever since Franklin D. Roosevelt threatened to “pack the Courts up” in 1937, the federal judiciary has aided and abetted the rise of a fully-administered state. The division of power has since disintegrated to the point that it would demoralize the Framers — and would worry all Americans.

Now, the United States Court of Appeals for the Fifth Circuit has taken what could be a historic step toward restoring the Constitution’s checks and balances, in the case of Jakesy v. SEC. The Securities and Exchange Commission acts as the planner, prosecutor, and judge of U.S. securities law. It may have been a sure-fire case of fraud against investor George Jarkesy, but the powers and privileges the agency has amassed raise constitutional questions.

The Constitution provides for legislative power in Congress, executive power in the president, and judicial power in the federal courts. But today the executive branch does most of the legislative and judicial work in the federal government, while paradoxically the administrative organs beyond the control of the president (or anyone else) are in control. retains most of the executive power. Checks and balances are vanishing in all directions, with the executive absorbing the power of other branches into an administrative conglomerate, even as executive power is shielded from democratic control.

In Mr. Jarkesy’s case, the SEC used a provision in the Dodd-Frank law that allows it to seek civil penalties for fraud in ordinary federal courts or in internal proceedings. before their own administrative law judges. Those ALJs are public servants who can only be removed for good cause by SEC commissioners who can only be removed for good cause.

The Fifth Circuit found some major problems with all of this. First, the Seventh Amendment guarantees trial by jury. Although Congress could create agency courts without a jury for claims related to regulatory programs, such as revocation of a license to give financial advice, the courts Federalists have repeatedly held that in traditional cases, such as civil penalties for fraud, the Constitution protects the right to trial by jury. Therefore, the SEC’s decision to investigate, prosecute and punish Mr. Jarkesy with hefty fines in its own court is unconstitutional.

The Fifth Circuit doesn’t stop there. The power to decide what conduct can be tried before the traditional courts and which can be tried before the agency courts without a jury is a fundamental legislative power, as it determines the measures to be taken. procedural protections to which the respondent is entitled. The Supreme Court has ruled that Congress can only involve agencies in rule-making when it provides “understandable principles” to guide them, thus exercising its power to make rules. legislation and their role is limited to the executive function.

Fifth Street argues that since Dodd-Frank’s giving the SEC the power to decide what cases go to traditional courts and what to hear in private courts is not supported by any intelligible principles. , which is an unconstitutional delegation of legislative power. given to Parliament. Importantly, the court mentioned Neil Gorsuch’s dissident in Gundy v. US, this lays the groundwork for the substantial limits on the rule-making authority that Congress can delegate to agencies.

The Fifth Circuit also found that because agency officials exercise executive power only in the name of the president, where that power is constitutionally vested, such officials are accountable to the president. That means the president must be able to remove them at will. For most of the last century, it was assumed that if an executive officer performed semi-legislative or quasi-judicial functions in addition to executive functions, that official could be shielded from the president by the president. dismiss; hence the existence of “independent bodies”.

However, over the past decade, the Supreme Court has ruled in cases such as Free Enterprise Fund v. PCAOB and Seila Law v. CFPB that there are limits to the extent to which any official exercising executive power can be shielded from the control of the president. The Fifth Round took these decisions to their next logical step, arguing that because SEC ALJs exercise executive power in addition to other functions, restrictions on presidential removals violate give.

That could seriously disrupt administrative hearings, and not just the SEC. Therefore, the decision will almost certainly be appealed to the Supreme Court. This decision heralds a potentially significant reduction of the administrative state. A century after bowing to FDR’s threat of court packing, the federal judiciary may be restoring confidence to enforce the Constitution’s limits on government power.

Loyola, a professor at Florida International University and senior fellow at the Competitive Enterprise Institute, served as deputy director of regulatory reform for the White House Council on Environmental Quality, 2017-19.

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https://www.wsj.com/articles/judicial-ruling-challenges-sec-jarkesy-security-and-exchange-commission-illegal-seventh-amendment-fifth-circuit-constitution-executive-power-11653247133 A Judicial Ruling Challenges the SEC’s Illegal Power

Alley Einstein

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