Amicus Curiae Brief — Securities and Exchange Commission, et al., Petitioners v. Michelle Cochran

No. 21-1239

IN THE

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_______________

SECURITIES AND EXCHANGE COMMISSION, ET AL.,

Petitioners,

v.

MICHELLE COCHRAN,

Respondent.

_______________

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Fifth Circuit

_______________

BRIEF OF RAYMOND J. LUCIA, SR.,

GEORGE R. JARKESY, JR., AND

CHRISTOPHER M. GIBSON

AS AMICI CURIAE SUPPORTING RESPONDENT

_______________

KELLAM M. CONOVER

Counsel of Record

BRIAN A. RICHMAN

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

KConover@gibsondunn.com

Counsel for Amici Curiae

QUESTION PRESENTED

Whether the Securities Exchange Act of 1934 implicitly strips federal district courts of jurisdiction to

adjudicate structural constitutional claims challenging Securities and Exchange Commission administrative proceedings.

ii

TABLE OF CONTENTS

Page

INTEREST OF AMICI CURIAE ............................. 1

SUMMARY OF ARGUMENT .................................. 3

ARGUMENT ............................................................ 4

I.

GRANTING THE PETITION NOW IS THE ONLY

WAY TO RESOLVE AN INTRACTABLE CIRCUIT

SPLIT. ............................................................ 5

II. GRANTING THE PETITION NOW IS THE ONLY

WAY TO PREVENT CONTINUED VIOLATION OF

INDIVIDUAL RIGHTS. .................................... 11

CONCLUSION ....................................................... 17

iii

TABLE OF AUTHORITIES

Page(s)

Cases

Abbott Labs. v. Gardner,

387 U.S. 136 (1967) .......................................... 6, 11

Axon Enter., Inc. v. FTC,

986 F.3d 1173 (9th Cir. 2021) .............................. 10

Dawson v. Scott,

50 F.3d 884 (11th Cir. 1995) .................................. 8

Elgin v. Dep’t of Treasury,

567 U.S. 1 (2012) .................................................... 6

Free Enter. Fund v.

Pub. Co. Accounting Oversight Bd.,

561 U.S. 477 (2010) ........................................ 3, 5, 6

Gibson v. SEC,

2019 WL 5698679 (N.D. Ga. May 8, 2019)............ 2

Jarkesy v. SEC,

48 F. Supp. 3d 32 (D.D.C. 2014) ........................ 1, 3

Lorenzo v. SEC,

872 F.3d 578 (D.C. Cir. 2017) .............................. 14

Lucia v. SEC,

138 S. Ct. 2044 (2018) ............................................ 1

Marx v. Gen. Revenue Corp.,

568 U.S. 371 (2013) ............................................... 6

iv

Raymond J. Lucia Cos. v. SEC,

2019 WL 3997332 (S.D. Cal. Aug. 21, 2019) ......... 1

Saad v. SEC,

873 F.3d 297 (D.C. Cir. 2017) .............................. 13

Seila Law LLC v. CFPB,

140 S. Ct. 2183 (2020) ................................ 2, 14, 16

Taylor v. Grubbs,

930 F.3d 611 (4th Cir. 2019) .................................. 8

Tech. Automation Servs. Corp. v.

Liberty Surplus Ins. Corp.,

673 F.3d 399 (5th Cir. 2012) .................................. 7

Thunder Basin Coal Co. v. Reich,

510 U.S. 200 (1994) ............................................ 5, 6

Tilton v. SEC,

824 F.3d 276 (2d Cir. 2016) ................................... 4

W. Va. Univ. Hosps., Inc. v. Casey,

499 U.S. 83 (1991) .................................................. 6

Statutes

15 U.S.C. § 45(a)(4)(B) ................................................ 9

15 U.S.C. § 45(c) .......................................................... 8

15 U.S.C. § 45(d) ........................................................ 10

15 U.S.C. § 51 ............................................................ 11

15 U.S.C. § 78bb(a)(2) ............................................... 10

v

15 U.S.C. § 78u(b)...................................................... 16

15 U.S.C. § 78y(a)(1).................................................... 8

15 U.S.C. § 78y(a)(3).................................................. 10

21 U.S.C. § 371(f)(6) .................................................. 11

Rules

Fed. R. Civ. P. 30(a)(2)(A)(i) ...................................... 15

FINRA R. 1014(a)(3)(C) ............................................ 12

Sup. Ct. R. 14.1(a) ....................................................... 9

Regulations

17 C.F.R. § 201.233(a) ............................................... 15

17 C.F.R. § 201.360(a)(2)(ii) ...................................... 14

Administrative Proceedings

In re Gibson,

2016 WL 1213259 (SEC Mar. 29, 2016) .............. 12

In re Harding Advisory LLC,

2014 WL 10937716 (SEC Jan. 24, 2014) ............. 15

In re Harding Advisory LLC,

2014 WL 4160053 (SEC Aug. 21, 2014) .............. 15

In re J.S. Oliver Capital Mgmt. LP,

2014 WL 10937777 (SEC Jan. 3, 2014) ............... 15

vi

In re J.S. Oliver Capital Mgmt., LP,

2014 WL 2965407 (SEC July 2, 2014) ................. 15

In re John Thomas Capital Mgmt. Grp. LLC,

2015 WL 728006 (SEC Feb. 20, 2015) ................. 12

In re John Thomas Capital Mgmt. Grp. LLC,

2020 WL 5291417 (SEC Sept. 4, 2020) ............... 13

In re Melton,

2000 WL 898566 (SEC July 7, 2000)................... 15

In re Raymond J. Lucia Cos.,

2015 WL 5172953 (SEC Sept. 3, 2015) ............... 13

In re Raymond J. Lucia Cos.,

2020 WL 3264213 (SEC June 16, 2020) .............. 16

Other Authorities

Chris Cox,

The Growing Use of SEC Administrative

Proceedings (May 13, 2015),

tinyurl.com/yyusqwh2.......................................... 15

Comments of Andrew N. Vollmer on Office of

Mgmt. & Budget Request for Information,

OMB-2019-0006 (Mar. 9, 2020),

tinyurl.com/y5qcknzx ..................................... 12, 14

Dave Michaels,

SEC Says Employees Improperly Accessed

Privileged Legal Records,

Wall St. J. (Apr. 6, 2022),

tinyurl.com/mr6r5mmt ........................................ 15

vii

Jean Eaglesham,

SEC Is Steering More Trials to Judges It

Appoints, Wall St. J. (Oct. 21, 2014),

tinyurl.com/yb6dgtzb ........................................... 14

Jean Eaglesham,

SEC Wins with In-House Judges,

Wall St. J. (May 6, 2015),

tinyurl.com/y44yqfwm ......................................... 14

Linda D. Jellum,

The SEC’s Fight to Stop District Courts

from Declaring Its Hearings

Unconstitutional,

101 Tex. L. R. (forthcoming 2022),

tinyurl.com/ykxydwe7. ......................................... 16

Mary Jo White, SEC Chair,

A New Model for SEC Enforcement

(Nov. 18, 2016),

tinyurl.com/ul7njec ................................................ 1

Office of Inspector General,

Report of Investigation,

Case No. 15-ALJ-0482-1 (2016),

tinyurl.com/y9xjr7fr ............................................. 12

Russell G. Ryan,

Get the SEC out of the PR Business,

Wall St. J. (Nov. 30, 2014),

tinyurl.com/582w4c5f ............................................. 2

INTEREST OF AMICI CURIAE

Raymond J. Lucia, Sr. is a former investment professional who had an unblemished career of nearly

forty years before he found himself in the crosshairs

of the Securities and Exchange Commission’s “‘bold

and unrelenting’” enforcement tactics.* Mary Jo

White, SEC Chair, A New Model for SEC Enforcement

(Nov. 18, 2016), tinyurl.com/ul7njec. Mr. Lucia’s fiveyear fight against the SEC’s unconstitutional administrative process—culminating in a victory before this

Court, see Lucia v. SEC, 138 S. Ct. 2044 (2018)—almost bankrupted him. On remand, Mr. Lucia continued to fight for two more years, collaterally challenging his unconstitutional remand proceedings before

being forced to settle. See Raymond J. Lucia Cos. v.

SEC, 2019 WL 3997332 (S.D. Cal. Aug. 21, 2019), appeal dismissed sub nom. Lucia v. SEC, 2020 WL

5588651 (9th Cir. June 23, 2020).

George R. Jarkesy, Jr. is an investment professional whose untarnished record spanned nearly two

decades. He is not, and for decades has not been, required to register with the SEC. Nevertheless, he too

found himself in the SEC’s crosshairs in 2013. After

the lower courts closed the courthouse doors on his collateral constitutional challenge, see Jarkesy v. SEC,

48 F. Supp. 3d 32, 38, 40 (D.D.C. 2014), aff’d, 803 F.3d

9 (D.C. Cir. 2015), he fought the SEC for five more

years before finally being able to obtain judicial review of his constitutional claims. His appeal on direct

review remains pending today.

*

All parties received timely notice of and have consented to the

filing of this brief. Amici affirm that no counsel for any party

authored this brief in whole or in part and that no person or entity made a monetary contribution specifically for the preparation or submission of this brief.

2

Christopher M. Gibson is a former investment adviser who has been trapped in a nightmare involving

the SEC for much of his professional life. During a

two-year investigation and six-year litigation before a

biased and unconstitutional adjudicator, Mr. Gibson

has vigorously contested the truth of the SEC’s allegations against him. It is now four years since Lucia

required a new hearing in his case; yet the Commission has refused even to schedule oral argument or enter any final decision. Because lower courts have refused to hear his collateral constitutional challenges,

see Gibson v. SEC, 2019 WL 5698679 (N.D. Ga. May

8, 2019), aff’d, 795 F. App’x 753 (11th Cir. 2019), the

SEC’s delays have entirely barred Mr. Gibson’s access

to an Article III court.

Thus, for years—seven years for Mr. Lucia (before

he settled), over seven years for Mr. Jarkesy, and six

years (and counting) for Mr. Gibson—the SEC subjected Amici to the “‘here-and-now’ injury” of being

forced to defend themselves against an unconstitutional administrative tribunal. Seila Law LLC v.

CFPB, 140 S. Ct. 2183, 2196 (2020) (citation omitted).

And thus, for years, Amici have suffered. They have

been unemployable in their chosen profession and unable to obtain a license in other professions; their bank

and brokerage accounts have been closed; interest

rates on their loans have skyrocketed; and their assets

have been decimated—all while the SEC (through biased press releases ghostwritten by the Enforcement

Division) has dragged their reputation through the

mud, and left it there, see Russell G. Ryan, Get the

SEC out of the PR Business, Wall St. J. (Nov. 30,

2014), tinyurl.com/582w4c5f. For years.

This is not the outcome Congress intended, nor

one the Constitution permits. The federal courts sit

3

to resolve constitutional disputes between citizens

and the government—not to avoid them. Amici’s experience, unfortunately, is “hardly unique.” Jarkesy,

803 F.3d at 29. Amici therefore respectfully urge this

Court to grant certiorari now and afford Ms. Cochran

(and hundreds like her) the one thing Amici sought

these many years: their day in court.

SUMMARY OF ARGUMENT

All parties agree that certiorari is warranted in

this case. See Pet. 6; Resp. Br. 11. The only question

is whether this Court should hold the petition pending

resolution of Axon Enterprise, Inc. v. FTC, No. 21-86

(cert. granted Jan. 24, 2022), or instead grant the petition now and decide this case alongside Axon.

The Court should grant the petition now. That is

the only way to resolve the circuit split below and to

save hundreds of individuals from additional years of

protracted litigation over whether any decision in

Axon opens the courthouse doors to collateral constitutional challenges to the SEC’s in-house tribunals.

If the Court were instead to hold the petition for

Axon, the split created by the decision below would

persist. The en banc Fifth Circuit concluded below

that Free Enterprise Fund alone “controls” the result

in the Exchange Act context. Pet. App. 13a (discussing Free Enter. Fund v. Pub. Co. Accounting Oversight

Bd., 561 U.S. 477, 489 (2010)). Unlike Free Enterprise

Fund, however, a decision on only the Federal Trade

Commission Act would not resolve the “precise jurisdictional [issue] under § 78y” of the Exchange Act. Id.

at 5a. And given the FTC Act’s distinct statutory regime, with distinct statutory text, history, and purpose, there is little reason to think any other court of

appeals—much less all of them—would reverse their

4

own precedents on Section 78y and join the Fifth Circuit. If anything, this Court’s decision in Axon might

rely on a distinction between the FTC Act and Exchange Act that could deepen the existing circuit split.

Unless this Court grants the petition now, hundreds of individuals who are compelled each year to

defend themselves in the SEC’s in-house proceedings

will have no meaningful opportunity to contest the

constitutionality of those proceedings. As the thentop enforcement official at the SEC has openly

bragged, the mere “‘threat[ ] [of] administrative proceedings’” is enough to coerce settlement—without

any judicial review—in the “‘vast majority of [the

SEC’s] cases.’” Tilton v. SEC, 824 F.3d 276, 298 n.5

(2d Cir. 2016) (Droney, J., dissenting) (quoting SEC’s

then-Director of Enforcement). Amici’s own experiences attest that the procedural unfairness built into

the SEC’s proceedings imposes a crushing burden on

defendants, who are generally unemployable for the

duration of the proceedings and must exhaust all of

their resources as they wait years to have their day in

federal court.

Nobody should have to wait in line for the better

part of a decade before a court can adjudicate her constitutional dispute with the government.

ARGUMENT

At bottom, this case presents a pure question of

statutory interpretation: whether Section 78y of the

Exchange Act implicitly divests federal district courts

of jurisdiction to adjudicate an individual’s claim that

she is being forced to defend herself in an unconstitutional administrative tribunal. The answer to that

question turns on “the text” of Section 78y and

5

whether the Exchange Act’s “‘statutory scheme’ displays a ‘fairly discernible’ intent to limit” the scope of

federal-question jurisdiction granted by 28 U.S.C.

§ 1331. Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 489 (2010) (quoting Thunder

Basin Coal Co. v. Reich, 510 U.S. 200, 207 (1994)).

In Axon, this Court will decide whether the Federal Trade Commission Act similarly limits the scope

of federal-question jurisdiction. Given that the FTC

Act is a different statutory regime than the Exchange

Act—with different statutory text, history, and purpose—a decision in Axon is unlikely to resolve the circuit split over the question presented in this case.

Holding the petition for Axon, therefore, would only

perpetuate that circuit split and add years of protracted litigation over the jurisdiction-stripping issue.

During that time, defendants in SEC administrative

proceedings will continue to see their constitutional

rights violated with no meaningful opportunity for judicial review.

For both reasons, the Court should grant the petition now, rather than hold it for Axon.

I.

GRANTING THE PETITION NOW IS THE ONLY

WAY TO RESOLVE AN INTRACTABLE CIRCUIT

SPLIT.

This Court’s review is needed now because holding the petition in light of Axon almost certainly will

not resolve the split among the courts of appeals.

As the United States recognizes, the relevant analytical “framework” is rooted in the specific “statutory scheme of administrative and judicial review” at

issue. Br. in Opp. 7–8, Axon, supra (No. 21-86) (“Axon

BIO”). A decision analyzing only the FTC Act’s statutory scheme thus has little prospect of changing any

6

Circuit’s analysis of Section 78y of the Exchange Act—

especially given Free Enterprise Fund’s on-point analysis of that latter provision. If anything, holding the

petition for Axon could deepen the existing circuit

split—after years of expensive litigation—as the

Court’s decision may rest on one of several potential

statutory distinctions between the FTC Act and Exchange Act.

A. Jurisdiction-stripping analysis is (and must

be) statute-specific. This Court has required “‘clear

and convincing evidence’” of congressional intent to

“restrict access to judicial review.” Abbott Labs. v.

Gardner, 387 U.S. 136, 141 (1967) (citation omitted).

And “[t]he best evidence of congressional intent . . . is

the statutory text that Congress enacted.” Marx v.

Gen. Revenue Corp., 568 U.S. 371, 392 n.4 (2013) (Sotomayor, J., dissenting) (citing W. Va. Univ. Hosps.,

Inc. v. Casey, 499 U.S. 83, 98 (1991)). As this Court

explained in Thunder Basin, Congress “has allocated

initial review to an administrative body” only where

“such intent is ‘fairly discernible in the statutory

scheme’” at issue. 510 U.S. at 207 (citation omitted).

Accordingly, this Court grounded Thunder Basin’s analytical framework in the relevant “statute’s

language, structure, and purpose,” in “its legislative

history,” and in whether that particular “‘statutory

scheme’” “afforded meaningful review” for the petitioner’s claims. 510 U.S. at 207 (citation omitted). Applying this framework in Free Enterprise Fund, the

Court similarly stressed that “the text” of “§ 78y” of

the Exchange Act “did not strip the District Court of

jurisdiction over” constitutional separation-of-powers

claims. 561 U.S. at 489–91; see also Elgin v. Dep’t of

Treasury, 567 U.S. 1, 10 (2012) (“examin[ing] the

CSRA’s text, structure, and purpose”).

7

The up-shot of this Court’s teachings is clear:

Whether one statutory regime strips jurisdiction over

a particular type of claim rarely, if ever, drives the

analysis of whether a different statutory regime—

with different statutory text, different statutory history, and different statutory purpose—does the same.

B. Given this statute-specific analysis, the only

way to resolve the circuit split below is to decide this

case alongside Axon. In the absence of an immediate

grant here, there is virtually no chance that lower

courts will resolve this split on their own.

A decision in Axon on a different statutory regime—with different statutory text, history, and purpose—is unlikely to change the law in any Circuit.

The en banc Fifth Circuit ruled that Free Enterprise

Fund is “control[ling]” precedent because it “already

rejected the SEC’s precise jurisdictional argument under § 78y.” Pet. App. 5a, 10a–13a. Because Axon involves the FTC Act, that case presents no opportunity

to address whether “Free Enterprise Fund is squarely

on point” with respect to the Exchange Act. Id. at 10a;

see Tech. Automation Servs. Corp. v. Liberty Surplus

Ins. Corp., 673 F.3d 399, 405 (5th Cir. 2012) (“for a

Supreme Court decision to change [the Fifth] Circuit’s

law,” it “must ‘unequivocally’ overrule prior precedent” (citation omitted)). Indeed, to the extent Free

Enterprise Fund has some bearing on the FTC Act,

too, the Court should grant review here to address

both contexts side by side.

Nor would the other courts of appeals likely

change their contrary view. See Pet. 6 (listing circuit

split). A ruling in Axon that the FTC Act strips jurisdiction over Axon’s claims most likely would not provide any basis for those courts to overturn their own

similar rulings as to Section 78y. And even if Axon

8

were to hold that the FTC Act does not strip jurisdiction, there is little reason to think such a ruling would

address Section 78y or the Exchange Act sufficiently

directly to warrant overturning those circuits’ prior

precedent. See, e.g., Taylor v. Grubbs, 930 F.3d 611,

619 (4th Cir. 2019) (“circuit precedent ‘controls’ where

[the] Supreme Court did not directly contradict our

prior holding” (citation omitted)); Dawson v. Scott,

50 F.3d 884, 892 n.20 (11th Cir. 1995) (requiring “directly applicable” intervening Supreme Court decision).

At minimum, it is fantasy to assume that all five

of those circuits would reverse their precedents—and

align with the Fifth Circuit—in light of a decision by

this Court on an altogether different statutory regime.

No matter how the Court resolves Axon, therefore, a

circuit split almost assuredly will persist. Revisiting

that split circuit by circuit, moreover, would be cumbersome and chaotic, requiring years of expensive litigation as some district courts could feel bound by preAxon precedents. All of that, however, is unnecessary

and can be avoided if the Court reviews this case now.

C. It gets worse. The Court’s decision in Axon

may rest on one of several statutory distinctions between the FTC Act and Exchange Act. Absent resolution by this Court now, those distinctions could

deepen the existing circuit split after years of further

litigation.

First, unlike the FTC Act, the Exchange Act permits judicial review of any “final order of the Commission,” 15 U.S.C. § 78y(a)(1), and is not limited to judicial review of only “cease and desist” orders, id.

§ 45(c). If the Court were to hold the petition here, it

necessarily could not resolve whether this statutory

9

distinction makes any difference. The question presented in Axon is specifically limited to a statute permitting judicial review of “the Commission’s ceaseand-desist orders.” Pet. i, Axon, supra (No. 21-86)

(“Axon Pet.”). It does not “fairly include[ ]” the question presented here, which is premised on the Exchange Act’s distinct statutory scheme and different

statutory language. See Resp. Br. 15–16 & n.5 (emphasis removed); Sup. Ct. R. 14.1(a) (“Only the questions set out in the petition, or fairly included therein,

will be considered by the Court”).

Moreover, the Court would have no occasion to

rule on this distinction because both parties in Axon

agree that permitting review of some final orders is

materially distinct from permitting review of all final

orders. Axon says this distinction “cuts in favor of

reading the FTC Act more narrowly when it comes to

jurisdiction-stripping.” Axon Pet. 21. And the United

States disagrees solely on the erroneous basis that

“there are no other orders that the FTC might issue”

beyond cease-and-desist orders. Axon BIO 9 n.*. In

fact, the FTC Act specifies that the “remedies available to the Commission with respect to unfair and deceptive acts or practices . . . includ[e] restitution to domestic or foreign victims.” 15 U.S.C. § 45(a)(4)(B).

Unless this Court grants the petition now, there

is likely to be drawn-out litigation on whether this

statutory distinction is material, and that could further fracture the courts of appeals. Under the en banc

Fifth Circuit’s decision below, the distinction should

make no difference because, like the FTC Act, the Exchange Act “says nothing about people, like Cochran,

who have not yet received a final order [or cease-anddesist order] of the Commission.” Pet. App. 7a. But

at least one other circuit judge seems to have adopted

10

Axon’s view, explaining that the FTC Act does not

strip jurisdiction in part because “[n]ot all actions the

FTC takes are subject to Article III scrutiny.” Axon

Enter., Inc. v. FTC, 986 F.3d 1173, 1192 (9th Cir.

2021) (Bumatay, J., dissenting in part).

Second, unlike the FTC Act, the Exchange Act

does not specify that the court of appeals’ jurisdiction

“shall be exclusive,” 15 U.S.C. § 45(d), but provides instead that it shall “become[ ] exclusive” after the record is filed, id. § 78y(a)(3) (emphasis added). The en

banc Fifth Circuit held below that “the use of ‘becomes’ necessarily implies a transformation” from

non-exclusive jurisdiction before a petition for review

is filed to exclusive jurisdiction “after a petition is

filed.” Pet. App. 9a n.6.

Although the United States apparently disagrees

that this is a “material[ ]” distinction, see Pet. 6, other

courts of appeals might or might not agree with the

United States’ position. Here, too, unless the Court

were to decide this case alongside Axon, the Court’s

decision may rest on the statutory language in the

FTC Act, without having any occasion to resolve

whether the distinct language in the Exchange Act

makes any difference. And in the absence of such plenary review, this distinction could prompt protracted

litigation and further splintering among the courts of

appeals.

Third, unlike the FTC Act, the Exchange Act expressly provides that, with one exception concerning

class actions, “the rights and remedies provided by

this chapter shall be in addition to any and all other

rights and remedies that may exist at law.” 15 U.S.C.

§ 78bb(a)(2) (emphasis added). This Court has previously ruled that a nearly identical provision in the

Food, Drug, and Cosmetic Act “strongly buttresse[s]”

11

the conclusion that Congress did not intend to strip

jurisdiction. Abbott Labs., 387 U.S. at 144; see

21 U.S.C. § 371(f)(6) (“The remedies provided for in

this subsection shall be in addition to and not in substitution for any other remedies provided by law”).

But if the Court were to hold the petition here, it necessarily could not resolve how such a broad saving

clause affects the analysis, as the equivalent FTC Act

provision is significantly more limited and mentions

no effect on existing rights or remedies. See 15 U.S.C.

§ 51 (FTC Act does not “alter, modify, or repeal the . . .

antitrust Acts or the Acts to regulate commerce”).

Absent resolution by this Court, therefore, a ruling that the FTC Act does not strip jurisdiction over

Axon’s separation-of-powers claim would cause years

of extended litigation and would potentially fracture

the courts of appeals even further as to whether the

Exchange Act strips jurisdiction over constitutional

claims like Ms. Cochran’s.

II. GRANTING THE PETITION NOW IS THE ONLY

WAY TO PREVENT CONTINUED VIOLATION OF

INDIVIDUAL RIGHTS.

As Amici know too well, additional years of protracted litigation over the jurisdiction-stripping issue

would have devastating consequences for defendants

in SEC administrative actions. During that time, the

crushing process of litigating against the SEC—at the

SEC—combined with the downside risk of receiving

the SEC’s severe penalties will force defendants to settle long before their constitutional challenge reaches

an Article III court on direct review.

Unless this Court grants the petition now, hundreds of individuals compelled each year to defend

themselves in unconstitutional SEC proceedings will

12

suffer irreparable harm without any meaningful opportunity for judicial review.

A. The SEC’s proceedings are so “slanted against

defendants” (as two current ALJs put it) that almost

no one has the time, resources, and energy needed to

fight it out to the end. Office of Inspector General,

Report of Investigation, Case No. 15-ALJ-0482-1, at

20 (2016), tinyurl.com/y9xjr7fr. The promise of judicial review is illusory.

SEC proceedings take years, and defendants usually “settle because their business, job, or personal relationships will not survive sustained adverse publicity repeating the SEC’s allegations over and over during the long life of litigation.” Comments of Andrew

N. Vollmer on Office of Mgmt. & Budget Request for

Information, OMB-2019-0006, at 4 (Mar. 9, 2020), tinyurl.com/y5qcknzx. Mr. Gibson, for example, already has been fighting for eight years, including a

two-year investigation. See In re Gibson, 2016 WL

1213259 (SEC Mar. 29, 2016) (order instituting proceedings). Even though Lucia required a new hearing

four years ago, the SEC has prevented his case from

reaching an Article III court by refusing to schedule

oral argument or enter any final decision. Mr.

Jarkesy likewise fought for nine years, including a

two-year investigation, before he could have his day in

court—and that was an “expedited” process. In re

John Thomas Capital Mgmt. Grp. LLC, 2015 WL

728006, at *2 (SEC Feb. 20, 2015).

Throughout these lengthy proceedings, the costs

keep piling on. In addition to facing steep legal fees,

the target of SEC administrative actions is generally

unemployable for the duration of those proceedings.

His chosen profession is out of the question. See, e.g.,

FINRA R. 1014(a)(3)(C) (judging an application for

13

membership based, in part, on whether an “Associated Person is the subject of a pending . . . regulatory

action or investigation by the SEC”). And starting his

own firm, of any type, is generally impossible as well;

given the pending enforcement action, no lender will

want to lend, especially at a reasonable cost. Selffunding is not an option either—as Mr. Gibson, Mr.

Jarkesy, and Mr. Lucia all learned—because banks

and brokerage firms close the accounts of anyone on

the wrong side of the “v.” in an SEC proceeding. Indeed, Mr. Lucia nearly went bankrupt fighting his enforcement proceeding, a fate all too common among

defendants in SEC administrative actions.

The downside risk of contesting the SEC’s charges

compounds the pressure to throw in the towel and

forego any constitutional challenge to the SEC’s

home-court process. Consider Mr. Jarkesy’s case. The

SEC slapped him with civil penalties of $300,000 and

disgorgement of $684,935. In re John Thomas Capital

Mgmt. Grp. LLC, 2020 WL 5291417, at *2 (SEC Sept.

4, 2020). And it issued various lifetime bans, id.—the

“‘securities industry equivalent of capital punishment,’” Saad v. SEC, 873 F.3d 297, 306 (D.C. Cir.

2017) (Kavanaugh, J., concurring) (citation omitted).

Mr. Lucia, too, was handed civil penalties totaling

$300,000 and various lifetime bans that took nearly

three years for a court to vacate. In re Raymond J.

Lucia Cos., 2015 WL 5172953, at *2 (SEC Sept. 3,

2015), vacated sub nom. Raymond J. Lucia Cos. v.

SEC, 736 F. App’x 2 (D.C. Cir. 2018).

Such immense downside risk, coupled with the

crushing costs and delays associated with litigating at

the SEC, means that—in the words of the former SEC

Deputy General Counsel—“[m]any SEC cases lack

merit, but the defendants settle” anyway. Vollmer,

14

supra, at 4. The unsparing reality is that virtually

every defendant in an SEC administrative action has

no real choice but to settle. That leaves their constitutional challenges to the SEC’s one-sided process unheard and the constitutional infirmities in that process unaddressed.

B. Unless the Court decides this case now, defendants in SEC administrative actions will face not

only years of continued litigation over the jurisdictionstripping issue, but also the “‘here-and-now’ injury” of

being forced to defend themselves against an unconstitutional administrative proceeding. Seila Law LLC

v. CFPB, 140 S. Ct. 2183, 2196 (2020) (citation omitted); see also Lorenzo v. SEC, 872 F.3d 578, 602 (D.C.

Cir. 2017) (Kavanaugh, J., dissenting) (describing the

“tension” between the Commission’s “agency-centric

process” and deeply rooted constitutional safeguards),

aff’d, 139 S. Ct. 1094 (2019).

The SEC does not merely enjoy a “home-court advantage” in those proceedings. Jean Eaglesham, SEC

Wins with In-House Judges, Wall St. J. (May 6, 2015),

tinyurl.com/y44yqfwm. In sports, a neutral arbiter

applies neutral rules to home and road team alike. At

the SEC, by contrast, the home team runs the show.

The government hand-picks its own referees and then

exerts substantial institutional pressure on those referees to (in the words of a former ALJ) place the “‘burden’” on the “‘accused’” to “‘show that they didn’t do

what the agency said they did.’” Jean Eaglesham,

SEC Is Steering More Trials to Judges It Appoints,

Wall St. J. (Oct. 21, 2014), tinyurl.com/yb6dgtzb.

At the SEC’s home court, moreover, the rules

change depending on whether the SEC or the defendant has the ball. Time limits, for example, are rigid

and rapid, see 17 C.F.R. § 201.360(a)(2)(ii)—until they

15

are not. When the defendant asks for a continuance

because, say, he was in a traffic accident, In re J.S.

Oliver Capital Mgmt. LP, 2014 WL 10937777, at *1

(SEC Jan. 3, 2014), or just was served with a document dump “larger than the entire printed Library of

Congress,” In re Harding Advisory LLC, 2014 WL

10937716, at *2 (SEC Jan. 24, 2014), the SEC invariably denies the motion. But when the Commission’s

ALJ seeks an extension of time merely because he is

busy, for example, the SEC invariably grants the motion. See, e.g., In re Harding Advisory LLC, 2014 WL

4160053 (SEC Aug. 21, 2014); In re J.S. Oliver Capital

Mgmt., LP, 2014 WL 2965407 (SEC July 2, 2014).

The “protections that our civil justice system affords litigants” to “protect [their] reputation[s], livelihood[s], and property” are likewise “denied to every litigant in an [SEC] administrative proceeding.” Chris

Cox, The Growing Use of SEC Administrative Proceedings 3–4 (May 13, 2015), tinyurl.com/yyusqwh2. The

Commission sits as both prosecutor and judge and is

unable to maintain any actual separation of these

functions. See Dave Michaels, SEC Says Employees

Improperly Accessed Privileged Legal Records, Wall

St. J. (Apr. 6, 2022), tinyurl.com/mr6r5mmt (enforcement employees “improperly accessed documents prepared for cases being litigated in the agency’s administrative court system”). Hearsay evidence is freely

admitted, even when such evidence would never “be

allowed into evidence in federal district court.” In re

Melton, 2000 WL 898566, at *5 (SEC July 7, 2000).

And defendants are limited to just three or five depositions, see 17 C.F.R. § 201.233(a)—far below the ten

depositions minimum allowed in federal court, see

Fed. R. Civ. P. 30(a)(2)(A)(i), and the virtually limitless depositions and subpoenas the Commission can

16

use to develop its own evidentiary record during its

multi-year investigations, see, e.g., 15 U.S.C. § 78u(b).

Even in the rare case where defendants fight until

the very end, it can take years of additional litigation

to obtain complete judicial review—and that may not

provide meaningful relief. Mr. Lucia learned this lesson the hard way. It took nearly three years for a federal court to uphold his Appointments Clause challenge to the ALJ who decided his case. And even then,

he was forced to settle the case after nearly two more

years of litigation—under the threat of another trip

through the SEC’s administrative gauntlet—before

any court could hear his remaining constitutional

challenges. See In re Raymond J. Lucia Cos., 2020

WL 3264213 (SEC June 16, 2020).

*

*

*

“The SEC should not be the decider of its own constitutionality. But that is what is happening.” Linda

D. Jellum, The SEC’s Fight to Stop District Courts

from Declaring Its Hearings Unconstitutional, 101

Tex. L. R. (forthcoming 2022), tinyurl.com/ykxydwe7.

Only this Court can open the courthouse doors for all

the individuals who find themselves before the SEC’s

in-house tribunals, being squeezed to settle. There is

no basis—in policy, logic, or equity—to keep those

courthouse doors closed and force defendants to continue litigating the jurisdiction-stripping issue while

they suffer immense financial harm and the “‘hereand-now’ injury” of defending themselves against an

unconstitutional tribunal. Seila Law, 140 S. Ct. at

2196 (citation omitted). The Court should grant the

petition now and should not wait until Axon is decided.

17

CONCLUSION

The petition for a writ of certiorari should be

granted now.

Respectfully submitted.

KELLAM M. CONOVER

Counsel of Record

BRIAN A. RICHMAN

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

KConover@gibsondunn.com

Counsel for Amici Curiae

April 11, 2022