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Firm Memoranda

Fifth Circuit Holds That SEC Administrative Proceedings Are Unconstitutional

Date: 06/23/22

The U.S. Court of Appeals for the Fifth Circuit recently held that the administrative adjudication process of the Securities and Exchange Commission (“SEC” or the “Commission”) for enforcement actions was unconstitutional. This marks a significant blow to the SEC’s administrative law process and sets the stage for an anticipated battle in the Supreme Court of the United States.

In Jarkesy v. SEC, the SEC brought an action against Petitioners George Jarkesy and Patriot28, L.L.C., and an Administrative Law Judge (“ALJ”) found them liable. The Commission affirmed the ALJ’s ruling and ordered, among other things, that Petitioners pay a $300,000 civil penalty. On appeal to the Fifth Circuit, Petitioners raised numerous constitutional challenges, including due process, equal protection, separation of powers under Article II, and the Seventh Amendment. The Fifth Circuit did not address all of these challenges in its opinion. However, by a vote of two-to-one, the Fifth Circuit panel did find the proceedings before the ALJ unconstitutional on three different grounds and vacated the SEC’s decision to affirm the ALJ.

CGR Memo - Fifth Circuit Holds That SEC Administrative Proceedings Are Unconstitutional.pdf (pdf | 76.23 KB )