Amicus Curiae Brief — Securities and Exchange Commission, Petitioner v. George R. Jarkesy, Jr., et al.

NO. 22-859

In the

Supreme Court of the United States

________________

SECURITIES AND EXCHANGE COMMISSION,

v.

Petitioner,

GEORGE R. JARKESY, JR. and PATRIOT28, L.L.C.,

________________

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

________________

BRIEF FOR AMICUS CURIAE

PIONEER PUBLIC INTEREST LAW CENTER

IN SUPPORT OF RESPONDENTS

________________

Frank J. Bailey

President

PIONEER PUBLIC

INTEREST LAW CENTER

185 Devonshire Street

Suite 1101

Boston, MA 02110

Ashley C. Parrish

Counsel of Record

KING & SPALDING LLP

1700 Pennsylvania Ave. NW

Washington, DC 20006

(202) 737-0500

aparrish@kslaw.com

I. Cason Hewgley IV

KING & SPALDING LLP

1100 Louisiana Street

Suite 4100

Houston, TX 77002

Counsel for Amicus Curiae

October 18, 2023

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....................................... ii

STATEMENT OF INTEREST ................................... 1

SUMMARY OF THE ARGUMENT ........................... 2

ARGUMENT ............................................................... 5

I.

The Court Should Reject the Government’s

Disaggregation Approach for Defeating the

Constitution’s Structural and Procedural

Guarantees .......................................................... 5

A. Multiple constitutional requirements

limit when executive officials may

exercise adjudicatory powers ....................... 6

B. The Commission’s novel adjudicatory

process renders void multiple layers of

constitutional protections .......................... 12

II. The Dodd Frank Act Strays Far Beyond

Constitutional Limitations................................ 14

A. The new powers granted to the

Commission exceed constitutional limits .. 15

B. Allowing the Commission to adjudicate

its

own

prosecutions

violates

constitutional requirements....................... 18

CONCLUSION ......................................................... 30

ii

TABLE OF AUTHORITIES

Cases

Aetna Life Ins. Co. v. Lavoie,

475 U.S. 813 (1986) ................................................ 26

Am. Cyanamid Co. v. FTC,

363 F.2d 757 (6th Cir. 1966).................................. 22

Amos Treat & Co. v. SEC,

306 F.2d 260 (D.C. Cir. 1962) ................................ 21

Antoniu v. SEC,

877 F.2d 721 (8th Cir. 1989).................................. 22

Atlas Roofing Co.

v. Occupational Safety

& Health Review Comm’n,

430 U.S. 442 (1977) ................................................ 11

Caperton v. A.T. Massey Coal Co.,

556 U.S. 868 (2009) ................................................ 19

Chen v. Gonzales,

470 F.3d 1131 (5th Cir. 2006)................................ 27

Commodity Futures

Trading Comm’n v. Schor,

478 U.S. 833 (1986) ................................................ 11

Crowell v. Benson,

285 U.S. 22 (1932) .................................................. 11

Den ex rel. Murray

v. Hoboken Land &

Improvement Co. (Murray’s Lessee),

59 U.S. (18 How.) 272 (1856) ................................... 9

Exec. Benefits Ins. Agency v. Arkison,

573 U.S. 25 (2014) .................................................... 7

iii

Free Enter. Fund v. PCAOB,

561 U.S. 477 (2010) ...................................... 8, 13, 23

FTC v. Texaco, Inc.,

381 U.S. 739 (1965) ................................................ 22

Granfinanciera, S.A. v. Nordberg,

492 U.S. 33 (1989) .................................................. 23

In re Murchison,

349 U.S. 133 (1955) .......................................... 18, 20

Lane v. Wilson,

307 U.S. 268 (1939) ................................................ 12

Lucia v. SEC,

138 S. Ct. 2044 (2018)............................................ 23

N. Pipeline Constr. Co.

v. Marathon Pipe Line Co.,

458 U.S. 50 (1982) .................................................... 6

Nat’l Cable & Telecomms. Ass’n

v. Brand X Internet Servs.,

545 U.S. 967 (2005) ................................................ 27

Ohio Bell Tel. Co. v. Pub. Utils. Comm’n,

301 U.S. 292 (1937) ................................................ 18

Oil States Energy Servs., LLC

v. Greene’s Energy Grp., LLC,

138 S. Ct. 1365 (2018).............................. 6, 9, 10, 11

Patterson v. New York,

432 U.S. 197 (1977) ................................................ 27

Perez v. Mortg. Bankers Ass’n,

575 U.S. 92 (2015) .................................................... 7

Rhode Island v. Massachusetts,

37 U.S. 657 (1838) .................................................... 6

iv

SEC v. Moraes,

No. 22-cv-8343,

2022 WL 15774011 (S.D.N.Y. Oct. 28, 2022) ........ 28

SEC v. Tex. Gulf Sulphur, Co.,

401 F.2d 833 (2d Cir. 1968) ................................... 27

Seila Law LLC

v. Consumer Fin. Prot. Bureau,

140 S. Ct. 2183 (2020)........................................ 9, 14

Sierra Club v. Costle,

657 F.2d 298 (D.C. Cir. 1981) ................................ 20

Stern v. Marshall,

564 U.S. 462 (2011) ...................................... 6, 11, 13

Texaco, Inc. v. FTC,

336 F.2d 754 (D.C. Cir. 1964) ................................ 22

Thomas v. Union Carbide Agric. Prods. Co.,

473 U.S. 568 (1985) ................................................ 11

Tumey v. Ohio,

273 U.S. 510 (1927) .......................................... 18, 19

U.S. Term Limits, Inc. v. Thornton,

514 U.S. 779 (1995) ................................................ 12

VanCook v. SEC,

653 F.3d 130 (2d Cir. 2011) ................................... 27

Ward v. Vill. of Monroeville,

409 U.S. 57 (1972) .................................................. 26

Williams v. Pennsylvania,

136 S. Ct. 1899 (2016)...................................... 19, 21

Withrow v. Larkin,

421 U.S. 35 (1975) .................................................. 20

v

Wolff v. McDonnell,

418 U.S. 539 (1974) .................................................. 8

Constitutional Provisions

U.S. Const. art. I, § 1 .................................................. 7

U.S. Const. art. II, § 1, cl. 1 ........................................ 7

U.S. Const. art. III, § 1 ............................................... 7

U.S. Const. art. III, § 2, cl. 3 ...................................... 7

U.S. Const. amend. IV ................................................ 7

U.S. Const. amend. V ................................................. 7

U.S. Const. amend. VI ................................................ 7

U.S. Const. amend. VII .............................................. 7

Statutes

5 U.S.C. § 554(d) ....................................................... 19

15 U.S.C. § 77h(d) ..................................................... 16

15 U.S.C. § 77h-1(g) .................................................. 17

15 U.S.C. § 77t(d)...................................................... 17

15 U.S.C. § 78d-1(a) .................................................. 23

15 U.S.C. § 78l(j) ....................................................... 16

15 U.S.C. § 78o(b)(4) ................................................. 16

15 U.S.C. § 78u(b) ..................................................... 23

15 U.S.C. § 78u(d) ..................................................... 17

15 U.S.C. § 78u-2 ................................................ 16, 17

15 U.S.C. § 78u-6 ...................................................... 25

15 U.S.C. § 78y ................................................... 26, 27

vi

15 U.S.C. § 80a-41(e) ................................................ 17

15 U.S.C. § 80a-8(e) .................................................. 16

15 U.S.C. § 80a-9(b) .................................................. 16

15 U.S.C. § 80a-9(d) ............................................ 16, 17

15 U.S.C. § 80b-3(c)(2)(B) ......................................... 16

15 U.S.C. § 80b-3(e) .................................................. 16

15 U.S.C. § 80b-3(f) ................................................... 16

15 U.S.C. § 80b-3(i) ............................................. 16, 17

15 U.S.C. § 80b-9(b) .................................................. 23

15 U.S.C. § 80b-9(e) .................................................. 17

15 U.S.C. § 7246 ....................................................... 25

Pub. L. No. 101-429,

104 Stat. 931 (1990) ......................................... 16, 17

Pub. L. No. 111-203,

124 Stat. 1376 (2010) ............................................. 17

Regulations & Rules

17 C.F.R. § 200.30-10 ............................................... 23

17 C.F.R. § 201.101(a) ........................................ 19, 20

17 C.F.R. § 201.200 ................................................... 20

17 C.F.R. § 201.233(a)(1) .......................................... 23

17 C.F.R. § 201.360(a)(2)(ii) ..................................... 22

17 C.F.R. § 202.5(c) ................................................... 21

Fed. R. Civ. P. 30 ...................................................... 23

vii

Other Authorities

6 Thomas Lee Hazen,

Law Sec. Reg. § 16:101 .......................................... 23

Aguilar, Luis A.

Commissioner, SEC, Remarks Before the

20th Annual Securities and Regulatory

Enforcement Seminar (Oct. 25, 2013) ................... 28

Atkins, Paul S., & Bradley J. Bondi,

Evaluating the Mission: A Critical Review

of the History and Evolution of the SEC

Enforcement Program, 13 Fordham J. Corp.

& Fin. L. 367 (2008) ......................................... 16, 17

Barkow, Rachel E.

Separation of Powers and the Criminal

Law, 58 Stan. L. Rev. 989 (2006) ............................ 9

Barnett, Kent

Due Process for Article III—Rethinking

Murray’s Lessee, 26 Geo. Mason L. Rev.

677 (2019) ............................................................... 11

Baude, William

Adjudication Outside Article III,

133 Harv. L. Rev. 1511 (2020) ............................... 10

Calabresi, Steven G., & Gary Lawson,

The Depravity of the 1930s and the Modern

Administrative State, 94 Notre Dame L.

Rev. 821 (2018) ........................................................ 9

Chapman, Nathan S.,

& Michael W. McConnell,

Due Process as Separation of Powers,

121 Yale L.J. 1672 (2012) .................................. 8, 10

viii

Choi, Stephen J., & A.C. Pritchard,

The SEC’s Shift to Administrative

Proceedings: An Empirical Assessment,

34 Yale J. on Reg. 1 (2017) .............................. 17, 28

Cornerstone Rsch.,

SEC Enforcement Activity: Public

Companies and Subsidiaries, Fiscal Year

2022 Update (2022)................................................ 28

Cox, Christopher, Chair, SEC,

Address at the PLI 40th Annual Securities

Regulation Institute: Building on Strengths

in Designing the New Regulatory Structure

(Nov. 12, 2008) ....................................................... 25

Eaglesham, Jean

SEC Wins With In-House Judges,

Wall St. J. (May 6, 2015) ................................. 24, 27

The Federalist

No. 10 (James Madison) ........................................ 18

The Federalist

No. 47 (James Madison) ........................................ 13

The Federalist

No. 70 (Alexander Hamilton) .................................. 7

The Federalist

No. 78 (Alexander Hamilton) .............................. 7, 9

The Federalist

No. 79 (Alexander Hamilton) .................................. 7

ix

Gasaway, Robert R.,

& Ashley C. Parrish,

Administrative Law in Flux:

An Opportunity for Constitutional

Reassessment, 24 Geo. Mason L. Rev. 361

(2017) ........................................................................ 8

Glassman, Thomas

Ice Skating Up Hill: Constitutional

Challenges to SEC Administrative

Proceedings, 16 J. Bus. & Sec. L. 47 (2015) .... 15, 16

Greve, Michael S.

Delegation in Context (George Mason Univ.

Legal Studies Research Paper Series,

Working Paper No. 23-07, 2003) ........................... 14

Grundfest, Joseph A.

Fair or Foul? SEC Administrative

Proceedings and Prospects for Reform

Through Removal Legislation,

85 Fordham L. Rev. 1143 (2016) ........................... 26

Hamburger, Philip

Is Administrative Law Unlawful? (2014) ....... 20, 24

Harrison, John

Public Rights, Private Privileges, and

Article III, 54 Ga. L. Rev. 143 (2019) .................... 10

Jonathan R. Macey,

The Distorting Incentives Facing the

U.S. Securities and Exchange Commission,

33 Harv. J. L. & Pub. Pol’y 639 (2010) .................. 25

x

Jones, Ryan

The Fight Over Home Court: An Analysis of

the SEC’s Increased Use of Administrative

Proceedings, 68 SMU L. Rev. 507 (2015) .. 12, 16, 17

Koch, Charles H., Jr.,

Administrative Presiding Officials Today,

46 Admin. L. Rev. 271 (1994) ................................ 24

Lawson, Gary

The Rise and Rise of the Administrative

State, 107 Harv. L. Rev. 1231 (1994) ...................... 9

Nelson, Caleb

Adjudication in the Political Branches,

107 Colum. L. Rev. 559 (2007) .......................... 7, 10

Nominations Hearing Before the

S. Comm. on Banking, Housing,

and Urban Affairs,

113th Cong. (2013) (statement of Chair

Mary Jo White) ...................................................... 25

Press Release,

SEC, No. 2013-46, SEC Charges

Hedge Fund Manager and Brokerage

CEO With Fraud (Mar. 22, 2013) ......................... 22

Press Release,

SEC, No. 2021-44, SEC Awards

Approximately $1.5 Million to

Whistleblower (Mar. 9, 2021) ................................ 25

Rakoff, Jed S.

U.S. Dist. Judge, S.D.N.Y.,

Keynote Address at the PLI Securities

Regulation Institute: Is the SEC

Becoming a Law Unto Itself? (Nov. 5, 2014) .. 16, 26

xi

Reynolds, William Bradford

Originalism and the Separation of Powers,

63 Tul. L. Rev. 1541 (1989) ..................................... 7

SEC Enforcement Manual

(last updated Nov. 28, 2017) ................................. 20

SEC Organizational Chart,

https://www.sec.gov/about/secorg.pdf.................... 23

SEC,

Commission Statement Relating

to Certain Administrative Adjudications

(Apr. 5, 2022), https://tinyurl.com/3e3c6hpr ......... 19

SEC,

Second Commission Statement

Relating to Certain Administrative

Adjudications (June 2, 2023),

https://tinyurl.com/4h5kw7z3................................ 20

SEC, Division of Enforcement,

2020 Annual Report (2020) ................................... 23

Selected Division of

Enforcement Accomplishments:

December 2016 – December 2020,

SEC.gov (last modified Mar. 6, 2023),

https://tinyurl.com/3x9abw72 ................................ 25

Urska Velikonja,

Are the SEC’s Administrative Law Judges

Biased? An Empirical Investigation,

92 Wash. L. Rev. 315 (2017) .................................. 28

Wurman, Ilan

Constitutional Administration,

69 Stan. L. Rev. 359 (2017) ..................................... 8

STATEMENT OF INTEREST 1

Pioneer Public Interest Law Center (“Pioneer”) is

a non-profit, non-partisan, public interest law firm

that defends and promotes freedom of speech, freedom

of association, open and accountable government,

economic opportunity, and educational opportunities.

Through legal action and public education, Pioneer

works to preserve and enhance constitutional and civil

liberties.

One key to resolving this case is to appreciate that

the relevant separation-of-powers and due process

principles that informed the decision below are

designed to work together to ensure that government

remains accountable to the citizenry as a whole and to

protect individual citizen’s rights.

Pioneer is

submitting this brief to explain how these

interconnected doctrines are a vital part of an

integrated constitutional structure. This brief also

explains why the government’s position—which seeks

to disaggregate the applicable constitutional

principles and to treat them as imposing only weak,

disconnected constraints on executive action—are

contrary both to this Court’s precedents and the

constitutional safeguards that are essential to

ensuring lawful and accountable government.

1 Pursuant to Supreme Court Rule 37.6, amicus curiae states

that no counsel for any party authored this brief in whole or in

part and that no entity or person, aside from amicus curiae, its

members, and its counsel, made any monetary contribution

toward the preparation or submission of this brief.

2

SUMMARY OF THE ARGUMENT

The novel procedures used by the Securities and

Exchange Commission to enforce the securities laws

allow that agency to serve simultaneously as

lawmaker, investigator, prosecutor, jury, and judge.

The administrative enforcement process offers

defendants, like petitioner George Jarkesy, little

opportunity to develop their defenses or to be

meaningfully heard. The entire process is drenched in

institutional bias. And lying at the bottom of this

inherent bias is a statutory scheme that blurs lines of

accountability, eliminates layers of constitutional

protections, and leaves executive officials with openended discretion to target disfavored citizens and

steamroll private rights.

The constitutional concerns underlying the

statutory scheme and the Commission’s one-sided

procedures are reflected in how far this case has

departed from basic rule-of-law principles. The events

underlying this action began nearly 15 years ago, just

before the 2008 financial crisis. In early 2007, Jarkesy

founded the John Thomas Capital Management

Group, LLC with the intent of managing several

“hedge” investment funds. Those funds were geared

toward sophisticated parties interested in high-risk,

high-reward

investments.

After

raising

approximately $24 million from more than 100

investors, some of the venture’s early investments did

not pan out, and the funds suffered losses.

Jarkesy’s hedge-fund businesses did not fall

under the Commission’s licensing authority. He has

never been a registered broker-dealer or investment

adviser; he has never enjoyed special legal privileges

3

under the securities laws; and he did not need the

Commission’s permission to open or manage his hedge

funds. At all relevant times, Jarkesy was a private

business owner entitled to all of the rights and

privileges of any other private citizen.

Nonetheless, following the hedge funds’ losses and

a political push to crack down on the financial

industry, the Commission prosecuted Jarkesy,

subjecting him to a summary administrative process

under the Dodd-Frank Wall Street Reform Act of 2010.

After years of nonpublic investigation, the

Commission’s enforcement staff provided a privileged,

ex parte presentation to the Commissioners describing

Jarkesy’s alleged misconduct. The Commissioners

then relied on that presentation to initiate a public

enforcement action and, on the same day, issued an

official press release touting the merits of the agency’s

case. Following prehearing procedures promulgated

by the Commission, which hampered Jarkesy’s ability

to develop his defense, Jarkesy was tried before an

Administrative Law Judge (“ALJ”) who was appointed

by and reports to the Commission. Surprising no one,

the ALJ made credibility determinations and factual

findings in the Commission’s favor.

The

Commissioners then affirmed those findings on intraagency appeal while modestly reducing the financial

sanctions.

The Commission’s processes are not consistent

with our constitutional order, and they yield

predictably biased and unfair results.

The

Constitution separates government powers and

guarantees fair and impartial adjudicative procedures

to ensure accountability and to prevent arbitrary

4

deprivations of life, liberty, and property. Although

this Court’s precedents have eased those

requirements in limited circumstances, they have

never allowed so many essential safeguards to be

eliminated all at once.

By authorizing the

Commission to adjudicate private rights through

administrative proceedings and by allowing the

agency to decide by its own lights whether a citizen is

entitled to the evidentiary and due process protections

provided by Article III courts (or should be deprived of

those protections through a summary administrative

process), Congress and the Commission have violated

the Constitution’s separation of powers and infringed

on Jarkesy’s due process rights.

The regulatory scheme overseen by the

Commission is infected with an unacceptable risk and

appearance of institutional bias. The court of appeals

correctly

recognized

that

the

Commission’s

inquisitorial process against Jarkesy cannot be

reconciled with constitutional requirements. This

Court should affirm.

5

ARGUMENT

I.

The Court Should Reject the Government’s

Disaggregation Approach for Defeating the

Constitution’s Structural and Procedural

Guarantees.

The government’s defense of the Commission and

the Dodd-Frank Act follows a familiar path: Treating

constitutional doctrine in disconnected fashion, the

government urges the Court to allow what it suggests

are only modest expansions of existing law. Public

rights are redefined to depend not on the nature of the

underlying right but only on whether Congress has

enacted a statute that imposes new statutory

obligations. Whether individuals are entitled to the

protections provided by an Article III court—or can be

dispossessed of those protections and forced into a onesided, administrative process—is reimagined as

merely a question of executive enforcement discretion.

And the Court is urged to accept multiple layers of

removal protections for Commission ALJs on the view

that tenure protections enhance the “perceived

fairness of the relevant agency proceedings,” but with

no answer to the well-documented bias that infects

those proceedings through and through.

This mode of analysis, which seeks to

disaggregate constitutional doctrines and divorce

them from the overall constitutional architecture, is

contrary to this Court’s separation-of-powers

precedents and the principle that statutory schemes

must be evaluated in their entirety and in light of the

Constitution as a whole. As this Court has long

recognized, the “proper” approach “is to take the

[C]onstitution as a whole, and keep constantly in mind

6

the grand design and intentions of its framers.” Rhode

Island v. Massachusetts, 37 U.S. 657, 673 (1838).

Accordingly, while the Court has allowed Congress

and executive agencies to relax constitutional

restrictions in certain limited circumstances, it has

never countenanced the simultaneous elimination of

the many safeguards bulldozed by the Commission in

this case.

The Commission’s quasi-criminal

prosecutions under Dodd Frank eviscerate due

process, intrude on private rights, and impermissibly

diffuse lines of accountability.

A. Multiple constitutional requirements

limit when executive officials may

exercise adjudicatory powers.

Executive-branch officials are not supposed to

exercise judicial power. See N. Pipeline Constr. Co. v.

Marathon Pipe Line Co., 458 U.S. 50, 59 (1982) (“The

judicial power of the United States must be exercised

by courts having the attributes prescribed in Art.

III.”). In most cases, the Constitution’s due process

guarantees require the government to bring any

accusatory, quasi-criminal lawsuits against private

persons in Article III courts, where impartial

adjudication by independent judges and lay juries is

guaranteed. See Stern v. Marshall, 564 U.S. 462, 482–

83 (2011). Administrative adjudications are a narrow

and carefully limited exception to these essential

rules. See Oil States Energy Servs., LLC v. Greene’s

Energy Grp., LLC, 138 S. Ct. 1365, 1373 (2018). They

are available only when a suit involves public rights

and privileges, and not when the vested liberty and

property rights of private citizens are at stake. See

Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25, 32–

7

33 (2014); see also Caleb Nelson, Adjudication in the

Political Branches, 107 Colum. L. Rev. 559, 563

(2007).

This bedrock principle has been long recognized.

The Framers separated the United States’ sovereign

powers to allow executive officials to act with “energy”

and “dispatch,” see The Federalist No. 70 (Alexander

Hamilton), while also erecting a system incorporating

the protections for individual rights characteristic of

Anglo-American jurisprudence. See Perez v. Mortg.

Bankers Ass’n, 575 U.S. 92, 116–19 (2015) (Thomas,

J., concurring); see also William Bradford Reynolds,

Originalism and the Separation of Powers, 63 Tul. L.

Rev. 1541, 1550–51 & n.31 (1989) (“The framers …

had a deep and distrustful vision of … the corrupting

effects of unchecked power ….”).

The Framers

achieved these goals by taking two profound and

related steps: First, they vested the political powers—

legislative and executive—in two representative

branches, see U.S. Const. art. I, § 1; id. art. II, § 1, cl.

1, while entrusting the judicial power to a separate,

independent branch, see id. art. III, § 1; see also The

Federalist Nos. 78, 79 (Alexander Hamilton). Second,

they provided individualized safeguards for those

accused of wrongdoing.

Among those essential

protections are the centuries-old common law rights to

due process and trial by jury. See U.S. Const. art. III,

§ 2, cl. 3; id. amends. IV–VII.

These structural features of our Constitution

advance

essential

principles

of

republican

government. The Constitution separates powers to

ensure that our government is accountable to its

citizens. See Free Enter. Fund v. PCAOB, 561 U.S. 477

8

(2010).

That constitutional organizing principle

requires courts to perform an important oversight

function in ensuring that (1) executive officials act

with fidelity to the commands of the sovereign people,

(2) the sovereign people are governed in regular and

non-arbitrary ways, and (3) the nature and effects of

the government’s activities on behalf of the sovereign

people are transparent and therefore subject to proper

evaluation through political debate and correction

through the ballot box. See Robert R. Gasaway &

Ashley C. Parrish, Administrative Law in Flux: An

Opportunity for Constitutional Reassessment, 24 Geo.

Mason L. Rev. 361, 361, 367 (2017).

These guiding principles—accountability, fidelity,

regularity, and transparency—are grounded in the

Constitution’s separation of powers and reinforced by

the Constitution’s due process guarantees, which

together protect individual citizens against “arbitrary

action of government.” Wolff v. McDonnell, 418 U.S.

539, 558 (1974); see generally Nathan S. Chapman &

Michael W. McConnell, Due Process as Separation of

Powers, 121 Yale L.J. 1672 (2012). To ensure that no

person is deprived of rights in life, liberty, or property

without a broad political consensus and an impartial

assessment of relevant facts, the Constitution

requires “a law permitting such [a] deprivation, an

executive deci[sion] to enforce that law, and a court

adjudicat[ion of] the facts” in front of an impartial

judge and lay jury. Ilan Wurman, Constitutional

Administration, 69 Stan. L. Rev. 359, 370 (2017).

Building that consensus is difficult—but that’s the

point. “[T]he Framers weighed the need for federal

government efficiency against the potential for abuse

and came out heavily in favor of limiting federal

9

government power.” Rachel E. Barkow, Separation of

Powers and the Criminal Law, 58 Stan. L. Rev. 989,

1017 (2006).

In modern times, the political branches have often

pushed for more lenient constraints and expedient

arrangements. See Seila Law LLC v. Consumer Fin.

Prot. Bureau, 140 S. Ct. 2183, 2241 (2020) (Kagan, J.,

concurring in the judgment and dissenting in part)

(“[N]ew times would often require new measures, and

exigencies often demand innovation.”).

As the

Framers envisioned, temporary “ill humors”

sometimes “occasion … innovations in the

government” that cut against traditional safeguards,

checks, and balances.

The Federalist No. 78

(Alexander Hamilton); see Steven G. Calabresi & Gary

Lawson, The Depravity of the 1930s and the Modern

Administrative State, 94 Notre Dame L. Rev. 821,

829–30 (2018). Responding to these pressures, this

Court has sometimes allowed executive-branch

adjudications as a substitute for full judicial process in

an independent forum—but only to a limited extent

and only under narrow and defined circumstances.

See Oil States, 138 S. Ct. at 1373; see also Gary

Lawson, The Rise and Rise of the Administrative State,

107 Harv. L. Rev. 1231, 1246–48 (1994).

A citizen’s procedural rights to an Article III court

(and its attendant constitutional protections) turn on

the nature of the substantive interests that hang in the

balance. On one hand, there are “private right[s],”

which must be adjudicated in “the common law, …

equity, or admiralty” courts. Den ex rel. Murray v.

Hoboken Land & Improvement Co. (Murray’s Lessee),

59 U.S. (18 How.) 272, 284–85 (1856). As traditionally

10

understood, “private rights” encompass interests in

life, liberty, and property that are fully vested in

private persons and are protected by the common law.

See Nelson, 107 Colum. L. Rev. at 565–67. Because

Congress possesses no judicial power and, therefore,

no power to adjudicate claims that would deprive

citizens of their private rights, it also cannot delegate

that power to executive officials. See Chapman &

McConnell, 121 Yale L.J. at 1803.

On the other hand, there are privileges tied to

“public rights,” for which something less than an

Article III process is required. Id.; see also Oil States,

138 S. Ct. at 1373 (noting that Congress has

“significant latitude to assign adjudication of public

rights to entities other than Article III courts”); see

also William Baude, Adjudication Outside Article III,

133 Harv. L. Rev. 1511, 1536 (2020). “Public rights”

encompass “the ownership interests of the

government,” which it may tentatively confer on

private persons.

John Harrison, Public Rights,

Private Privileges, and Article III, 54 Ga. L. Rev. 143,

163–64 (2019); see id. at 166–70; Nelson, 107 Colum.

L. Rev. at 567–68. Such privileges and benefits—

which include welfare benefits, public land grants,

and other instances of government largess—can be

kept from fully vesting in private hands (and thus

becoming private rights) by the government’s

imposition of special encumbrances and conditions.

Oil States, 138 S. Ct. at 1373; see Nelson, 107 Colum.

L. Rev. at 583; Harrison, 54 Ga. L. Rev. at 170.

Because a remedy for a public right’s violation

depends on whether Congress has chosen to allow it

by waiving sovereign immunity, “Congress may set

the terms of adjudicating” that type of suit, as “the suit

11

could not otherwise proceed at all.” Stern, 564 U.S. at

489.

As the administrative state has expanded, this

Court has at times wandered in grappling with the

“public rights” exception’s narrow boundaries, and

precedent has “not been entirely consistent.” Oil

States, 138 S. Ct. at 1373 (quoting Stern, 564 U.S. at

488). In some contexts, for example, the Court has

allowed private rights affiliated with certain

regulatory schemes to be adjudicated (at least

initially) outside of the Article III courts. See Crowell

v. Benson, 285 U.S. 22, 51–65 (1932). In others, the

Court has expanded the concept of “public rights” to

include traditionally private rights impacted by

certain regulatory regimes. See Thomas v. Union

Carbide Agric. Prods. Co., 473 U.S. 568, 589–90

(1985); Atlas Roofing Co. v. Occupational Safety &

Health Review Comm’n, 430 U.S. 442, 450–56 (1977).

And the Court has allowed certain private rights to be

adjudicated by executive agencies when all involved

have “indisputably waived” any right to a full trial

“before an Article III court.” Commodity Futures

Trading Comm’n v. Schor, 478 U.S. 833, 849 (1986).

These precedents have been subject to intense

criticism. See, e.g., Kent Barnett, Due Process for

Article III—Rethinking Murray’s Lessee, 26 Geo.

Mason L. Rev. 677, 681–92 (2019) (describing the

“public-rights exception” as a “doctrinal and

theoretical mess,” id. at 692). But for present

purposes, it is enough to recognize that they delineate

the outermost bounds of administrative adjudication.

The government faces an insurmountable burden

where, as here, it seeks to extend the scope of an

12

administrative adjudicatory process beyond those

bounds, which themselves stand on tenuous

constitutional ground.

B. The Commission’s novel adjudicatory

process renders void multiple layers of

constitutional protections.

In this case, none of this Court’s existing

precedents justify the government’s position. The

Commission’s defense of its post-Dodd-Frank

adjudication process urges this Court to go far beyond

what it has previously permitted. See Ryan Jones, The

Fight Over Home Court: An Analysis of the SEC’s

Increased Use of Administrative Proceedings, 68 SMU

L. Rev. 507, 516 (2015) (explaining the expansion of

adjudication authority through Dodd-Frank in 2010).

The government’s position also relies on an expansive

understanding of “public rights” that is obviously

wrong and inconsistent with the Court’s precedents.

Congress cannot convert matters of private right

into matters of public right—and evade constitutional

safeguards—simply by enacting a statute that

imposes new statutory obligations on private parties.

See U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779,

829 (1995) (noting that “[t]he Constitution ‘nullifies

sophisticated as well as simple-minded modes’ of

infringing on constitutional protections” (quoting

Lane v. Wilson, 307 U.S. 268, 275 (1939))). To the

contrary, as this Court has emphasized, if Congress

were permitted to withdraw from the judiciary any

matters that are “deem[ed] part of some amorphous

‘public right,’ then Article III would be transformed

from the guardian of individual liberty and separation

of powers we have long recognized into mere wishful

13

thinking.” Stern, 564 U.S. at 495. As the respondent’s

brief explains, the issues raised in this case involve

rights that are by their nature private. It thus makes

no difference that Congress has enacted a statute,

purportedly in the name of the public interest, that

seeks to invade those rights.

More broadly, the serious concerns raised by the

government’s attempt to redefine “public rights” are

amplified by the Dodd-Frank Act’s delegation of

legislative powers to the Commission. See The

Federalist No. 47 (James Madison) (“Were the power

of judging joined with the legislative, the life and

liberty of the subject would be exposed to arbitrary

control.” (quoting Montesquieu)). The Commission is

not only seeking to adjudicate private rights through

a novel, extra-judicial adjudicatory process permeated

with bias; it is also claiming unfettered discretion to

decide when individual citizens must participate in

that process (deprived of the protections afforded by

Article III courts) and have their rights adjudicated by

executive officials who are not subject to the

President’s control and oversight. See Free Enter., 561

U.S. at 496 (striking down “novel structure” that

transformed an agency’s independence by eliminating

multiple layers of constitutional protections).

This case presents a much greater threat to

separation of powers and individual rights and liberty

than any of the precedents relied on by the

government. Even if the government were correct that

each of Dodd-Frank’s innovations, on its own, might

be countenanced despite departing from the

constitutional baseline, their combination together

would still present an egregious violation of the

14

Constitution’s structural guarantees. See Michael S.

Greve, Delegation in Context 52 (George Mason Univ.

Legal Studies Research Paper Series, Working Paper

No. 23-07, 2003), available at https://papers.ssrn.com/

sol3/papers.cfm?abstract_id=4486697

(explaining

that statutes are most susceptible to challenge when

Congress puts “a broad delegation together with a lack

of procedural and judicial safeguards, in a domain

where citizen’s liberties are at stake”). When private

rights are at stake, the Constitution mandates an

Article III forum. Even when public rights are

involved, deciding whether individuals are entitled to

the protections of litigation before an Article III forum

requires careful legislative judgment; it cannot be left

to the unilateral discretion of an executive agency with

no statutory requirements to guide the agency’s

decision. And that is especially true where, as here,

the executive officials responsible for overseeing the

adjudicatory process are biased and subject to tenure

protections, making any attempt to ensure

accountability to the public for their decisions a forlorn

dream. See Seila Law, 140 S. Ct. at 2192, 2200.

In short, whatever the merits of the government’s

position when each of Dodd-Frank’s innovations are

taken in isolation, it is clear that the statutory scheme

as a whole is contrary to the Constitution.

II. The Dodd Frank Act Strays Far Beyond

Constitutional Limitations.

The grave constitutional concerns raised by the

Dodd-Frank Act’s novel provisions are reinforced by

examining how the Commission’s administrative

proceedings work in practice.

Unleashed from

constitutional constraints, the Commission has

15

abused its powers to impose an unprecedented

adjudicatory process that bears almost no

resemblance to the fair, unbiased procedures that due

process demands when private rights are at stake.

A. The new powers granted to the

Commission

exceed

constitutional

limits.

The Commission’s novel enforcement scheme

under the Dodd-Frank Act marks the culmination of a

decades-long creep and expansion of agency power.

When Congress first established the Commission in

the mid-1930s, it respected the separation of powers

and the rights of the accused. The original Securities

Exchange Act of 1934 empowered the Commission to

enforce violations primarily by “seeking injunctions in

federal district court.” Thomas Glassman, Ice Skating

Up Hill: Constitutional Challenges to SEC

Administrative Proceedings, 16 J. Bus. & Sec. L. 47, 50

(2015). In contrast, administrative proceedings could

be used only to “expel members or officers of [the]

national securities exchanges” that the Act directly

regulated. Id.

Even as the Commission’s powers and duties

expanded over subsequent decades, a respondent’s

right to process in an Article III court was largely

preserved. Each time the Commission ‘obtained or

asserted additional administrative powers … the

expansion was tied to the agency’s oversight of

regulated entities or those representing those entities

before the Commission, and even then was largely

ancillary to the broader remedies and sanctions [the

Commission] could obtain” in court. See id. (quoting

Jed S. Rakoff, U.S. Dist. Judge, Keynote Address at

16

the PLI Securities Regulation Institute: Is the SEC

Becoming a Law Unto Itself? (Nov. 5, 2014), available

at https://perma.cc/PM3Y-GWF9). The Commission’s

adjudicative purview largely remained limited to

cases involving the registration and deregistration of

securities, see 15 U.S.C. §§ 77h(d), 78l(j), and the

barring or suspension of Commission-licensed

securities firms and their associated persons, see id.

§§ 78o(b)(4), 80a-8(e), 80a-9(b), 80b-3(c)(2)(B), 80b3(e), 80b-3(f).

Over the past four decades, however, Congress

and the Commission have seized on crisis and scandal

to push constitutional boundaries. In the 1980s,

concerns over insider trading led to an expansion of

the remedies the Commission could obtain as

punishment for violating the law. See Glassman, 16

J. Bus. & Sec. L. at 51; Jones, 68 SMU L. Rev. at 511.

And with enactment of the Securities Enforcement

Remedies and Penny Stock Reform Act of 1990 (the

“Remedies Act”), the Commission’s administrative

adjudications could result in monetary penalties

against regulated parties and permanent cease-anddesist orders against even non-regulated parties. See

Pub. L. No. 101-429, §§ 202(a), 301, 401, 104 Stat. 931,

937, 941–45, 946–49 (1990) (codified respectively at 15

U.S.C. §§ 78u-2, 80a-9(d), and 80b-3(i)); see Paul S.

Atkins & Bradley J. Bondi, Evaluating the Mission: A

Critical Review of the History and Evolution of the

SEC Enforcement Program, 13 Fordham J. Corp. &

Fin. L. 367, 392–93 (2008). In this same time frame,

the Commission set out to increase “efficiency” in its

adjudicative process by truncating and streamlining

discovery and trial procedures. See Jones, 68 SMU L.

Rev.at 513. Still, if the Commission wished to impose

17

penalties on unregistered private citizens, or

otherwise to materially deprive them of their private

rights to liberty or property, it had to prove its case

before an Article III court. See Remedies Act §§ 101,

201, 302, 402 (codified at 15 U.S.C. §§ 77t(d), 78u(d);

80a-41(e), and 80b-9(e)).

In the wake of the 2008 financial crisis, however,

Congress took an unprecedented leap. In the DoddFrank Act, it purported to empower the Commission

to impose harsh quasi-criminal sanctions against any

private

citizen

through

the

agency’s

own

administrative adjudications with only limited, afterthe-fact review by a federal court of appeals. See Pub.

L. No. 111-203, § 929P, 124 Stat. 1376, 1862–64 (2010)

(codified at 15 U.S.C. §§ 77h-1(g), 78u-2(a); 80a-9(d),

and 80b-3(i)); see also Stephen J. Choi & A.C.

Pritchard, The SEC’s Shift to Administrative

Proceedings: An Empirical Assessment, 34 Yale J. on

Reg. 1, 9 (2017). The Commission had sought this

extraordinary power decades earlier, but Congress

had declined to grant it “specifically ‘because the

[Commission] might be perceived to have an incentive

to conduct more enforcement actions through its own

administrative proceedings.’” Jones, 68 SMU L. Rev.

at 516 (quoting Atkins, 13 Fordham J. Corp. & Fin. L.

at 393–94). Through Dodd-Frank, Congress threw

that caution to the wind.

The results were predictable.

Rather than

exercise its novel authority to avoid (or at least

minimize) serious constitutional concerns, the

Commission has exacerbated them. This case is a

perfect example: Jarkesy is a private citizen, not a

government licensee or even a registered professional

18

subject to the Commission’s authority. He acquired

his money in private commerce, not from the public

fisc. He has never consented to adjudication before an

administrative tribunal. Yet the Commission seeks to

deprive him of more than $1,000,000 of personal

property.

And to accomplish this result, the

Commission chose not to try Jarkesy before an

independent Article III court.

Instead, the

Commission opted to investigate, charge, adjudge, and

punish Jarkesy all on its own.

B. Allowing the Commission to adjudicate

its

own

prosecutions

violates

constitutional requirements.

The constitutionally suspect structure of the

Commission’s in-house adjudicatory process creates

the inherent risk and appearance of institutional bias,

and it yields predictably unfair results. Chief among

the liberties secured by the Constitution is the right to

a “fair trial in a fair tribunal,” In re Murchison, 349

U.S. 133, 136 (1955), “one of the rudiments of fair play

assured to every litigant,” and an “inexorable

safeguard” of individual liberty. Ohio Bell Tel. Co. v.

Pub. Utils. Comm’n, 301 U.S. 292, 304–05 (1937)

(internal quotation marks and citation omitted).

A fair trial requires an adjudicator who lacks “a

direct, personal, substantial, pecuniary interest” in a

case. Tumey v. Ohio, 273 U.S. 510, 523 (1927); see also

The Federalist No. 10 (James Madison) (“No man is

allowed to be a judge in his own cause, because his

interest would certainly bias his judgment, and, not

improbably, corrupt his integrity.”). Also forbidden is

the “objective risk of actual bias,” regardless of

“whether or not actual bias exists or can be proved.”

19

Caperton v. A.T. Massey Coal Co., 556 U.S. 868, 886

(2009); accord Williams v. Pennsylvania, 136 S. Ct.

1899, 1905 (2016) (courts “apply an objective

standard” that asks not whether the adjudicator

harbors actual, subjective bias but instead whether, as

an objective matter, “‘there is an unconstitutional

potential for bias’” (quoting Caperton, 556 U.S. at

881)). Due process is violated where perceived bias,

“under all the circumstances ‘would offer a possible

temptation to the average … judge to … lead him not

to hold the balance nice, clear[,] and true.’” Caperton,

556 U.S. at 885 (quoting Tumey, 273 U.S. at 532).

The Commission’s administrative proceedings are

rife with institutional biases that create a

constitutionally intolerable risk and perception that

those accused will not get a fair shake. To start, the

Commission is quite literally on the same side as the

prosecutors:

The

Commission’s

Division

of

Enforcement is primarily composed of attorneys who

simultaneously advise the Commissioners as trusted

fiduciary counsel and who represent the Commission

as litigation counsel in other cases in federal court.

The Commission and its staff ostensibly adhere to

certain “separation of function” rules. See 5 U.S.C.

§ 554(d) & 17 C.F.R. § 201.101(a).

But the

Commission admitted in April 2022 that those rules

were breached in a number of cases (including

Jarkesy’s), which eventually led to the discretionary

dismissal of more than two dozen still-pending cases

(though not Jarkesy’s).

See SEC, Commission

Statement Relating to Certain Administrative

Adjudications (Apr. 5, 2022), https://tinyurl

.com/3e3c6hpr; SEC, Second Commission Statement

20

Relating to Certain Administrative Adjudications

(June 2, 2023), https://tinyurl.com/4h5kw7z3. Despite

that embarrassing admission, the Commission

continues to adjudicate its own cases—a wellestablished violation of due process. See In re

Murchison, 349 U.S. at 136 (“[N]o man can be a judge

in his own case and no man is permitted to try cases

where he has an interest in the outcome.”). In such

circumstances, some measure of institutional bias is

unavoidable.

See

Philip

Hamburger,

Is

Administrative Law Unlawful? 337–38 (2014) (“Like

employees of the old prerogative bodies, employees of

administrative

bodies

become

psychologically

attached to the sort of power in which they play a role,

and they therefore are in no position to judge the

lawfulness of any exercise of that power.”). And

indeed, this “combination of investigative and

adjudicative functions” violates due process where

“from the special facts and circumstances … the risk

of unfairness is intolerably high.” Withrow v. Larkin,

421 U.S. 35, 58 (1975).

This functional cross-pollination within the

Commission is apparent from the outset—when the

Commission decides whether to institute an

enforcement action (for which it then becomes the

ultimate adjudicator). See 17 C.F.R. §§ 201.101(a), (4),

(7) and 201.200. It typically makes this determination

after the agency’s Enforcement Division prosecutors

have presented their case to the Commissioners in

written and oral ex parte communications cloaked by

attorney-client privilege.

See SEC Enforcement

Manual § 2.5 (last updated Nov. 28, 2017); see also

Sierra Club v. Costle, 657 F.2d 298, 400 (D.C. Cir.

1981), as amended (June 1, 1981) (“[T]he insulation of

21

the decisionmaker from ex parte contacts is justified

by basic notions of due process to the parties

involved.”). Although the accused is typically allowed

to submit a written position statement (commonly

referred to as a “Wells submission”) before the

Commission decides whether to file charges, see 17

C.F.R. § 202.5(c), the Commission’s prosecution team

can refute that statement in ex parte communications

with the Commissioners, whereas the accused neither

sees the prosecutors’ written presentation nor hears

the contents of their (privileged) discussions with the

Commissioners.

As a result, by the time the Commission initiates

its public adjudicatory proceeding, it has already

weighed the evidence and made a threshold

determination that the case has enough merit to

justify public charges and a public hearing, which is

more than enough to undermine “the very appearance

of complete fairness.” Amos Treat & Co. v. SEC, 306

F.2d 260, 266, 267 (D.C. Cir. 1962) (“We are unable to

accept the view that a member of an investigative or

prosecuting staff may … recommend the filing of

charges, and thereafter … participate in adjudicatory

proceedings”); accord Williams, 136 S. Ct. at 1907–08

(due process violated in civil post-conviction case

where state supreme court justice, as a former district

attorney, had approved subordinate prosecutor’s

request to seek death penalty in underlying criminal

case 25 years earlier).

In some cases, including Jarkesy’s, the

Commission will then issue an official press release

that reads as if the case has already been proved, the

facts found, and the accused deemed guilty. See Press

22

Release, SEC, No. 2013-46, SEC Charges Hedge Fund

Manager and Brokerage CEO With Fraud (Mar. 22,

2013), https://www.sec.gov/news/press-release/20132013-46htm. These press releases typically blur the

line between the Enforcement Division’s mere

allegations and the Commission’s purported

neutrality as the ultimate adjudicator. Reviewing the

Commission’s

accusatory

press

releases,

“a

disinterested reader … could hardly fail to conclude”

that the Commission has “in some measure decided in

advance” that the accused has violated the law.

Texaco, Inc. v. FTC, 336 F.2d 754, 760 (D.C. Cir. 1964),

vacated on unrelated grounds sub nom. FTC v. Texaco,

Inc., 381 U.S. 739 (1965) (per curiam)).

Such

prejudgment violates due process. See Antoniu v.

SEC, 877 F.2d 721, 725 (8th Cir. 1989) (SEC

Commissioner’s speech about pending case created

impermissible bias); Am. Cyanamid Co. v. FTC, 363

F.2d 757 (6th Cir. 1966) (disqualifying commissioner

who had, in a former role, investigated many of the

same facts at issue).

From the very start of the adjudicative

proceeding, then, those accused are publicly labelled

wrongdoers unless and until they prove otherwise.

But the deck is further stacked against them with

lopsided procedural rules promulgated by the

Commission. Forced to prepare their defenses within

strict timelines—a maximum of ten months in the

most

complex

of

cases,

see

17

C.F.R.

§ 201.360(a)(2)(ii)—respondents are immediately on

the back foot. And yet, while scrambling to catch up,

respondents have few tools at their disposal—only in

the most complex administrative cases are they

allowed depositions (subject to strict limits). Compare

23

17 C.F.R. § 201.233(a)(1) (maximum of three

depositions per side in single-respondent cases and

five per side in multi-respondent cases), with Fed. R.

Civ. P. 30 (permitting 10 depositions and more with

leave). In contrast, the Commission’s prosecution

team has typically already taken all the time it needs

to investigate and prepare its case; the average

investigation takes more than two years, see SEC,

Division of Enforcement, 2020 Annual Report 6

(2020), and many take five years or more. In addition,

the prosecutors have typically enjoyed subpoena

power throughout their investigation, often amassing

substantial evidence through document productions

and sworn nonpublic testimony. See, e.g., 15 U.S.C.

§§ 78u(b), 80b-9(b); 6 Thomas Lee Hazen, Law Sec.

Reg. § 16:101.

The Commission’s administrative proceedings

thus substitute trial before a petit jury—the

constitutional gold standard for adjudicating private

rights, see Granfinanciera, S.A. v. Nordberg, 492 U.S.

33 (1989)—with an initial hearing before an ALJ who,

like the prosecutors, reports to the Commission. See

SEC Organizational Chart, https://www.sec.gov/

about/secorg.pdf. That is not a fair trade and provides

little comfort for the accused. ALJs act according to

authority delegated by the Commission, 15 U.S.C.

§ 78d-1(a); 17 C.F.R. § 200.30-10, and their positions

are created, maintained, and funded by the

Commission, raising serious constitutional concerns.

See Lucia v. SEC, 138 S. Ct. 2044 (2018) (holding the

Commission’s ALJs are inferior officers); Free Enter.,

561 U.S. at 492, 496 (holding unconstitutional twolayer tenure protection of inferior officers).

24

Anecdotal evidence suggests that Commission

ALJs are pressured to find for the agency. See Jean

Eaglesham, SEC Wins With In-House Judges, Wall St.

J. (May 6, 2015), http://www.wsj.com/articles/sec-wins

-with-in-house-judges-1430965803

(former

ALJ

stating that she “came under fire … for finding too

often in favor of defendants”); Charles H. Koch, Jr.,

Administrative Presiding Officials Today, 46 Admin.

L. Rev. 271, 278–79 (1994) (34% of non-Social Security

ALJs were “asked to do things that are against their

better judgment,” 15% believe “threats to

independence were a problem,” and 9% were

“pressure[d] to make different decisions”). Regardless

of whether actual bias exists, there is a serious risk

and appearance of a biased proceeding—an

unacceptable risk in this quasi-criminal context. See

Hamburger, supra, at 231 (“[W]here agencies

adjudicate cases of a criminal nature, they tend to

deny the associated constitutional rights.”).

An ALJ’s initial decision is appealable to the

Commission, but that too is cold comfort. The

Commission rarely rules against itself. From 2010 to

2015, the Commissioners decided 95% of appeals in

the agency’s favor, sometimes overruling ALJ

decisions that were more favorable to the respondent

and sometimes imposing harsher sanctions. See

Eaglesham, SEC Wins with In-House Judges, supra.

That is predictable; after all, the Commission

describes itself as “[f]irst and foremost … a law

enforcement agency,” and has pledged to be “bold and

unrelenting” in pursuit of securities violators. See

Christopher Cox, Chair, SEC, Address at the PLI 40th

Annual Securities Regulation Institute: Building on

Strengths in Designing the New Regulatory Structure

25

(Nov. 12, 2008), https://www.sec.gov/news/speech/

2008/spch111208cc.htm; Nominations Hearing Before

the S. Comm. on Banking, Housing, and Urban

Affairs, 113th Cong. 10 (2013) (statement of Chair

Mary Jo White).

The Commission’s financial and political interests

also provide strong temptation to rule against

respondents. Although the Commission does not

directly profit from the monetary awards it imposes,

recovered funds are either distributed to harmed

investors under the Fair Funds for Investors provision

of Sarbanes-Oxley, see 15 U.S.C. § 7246, or deposited

into a fund that pays whistleblowers under a provision

of Dodd-Frank, see 15 U.S.C. § 78u-6.

The

Commission frequently boasts about these efforts. See

SEC Whistleblower Office Announces Results for FY

2022, at 1 (Nov. 15, 2022), available at https://www.

sec.gov/files/2022_ow_ar.pdf (“Since the beginning of

the program, the SEC has paid more than $1.3 billion

in 328 awards to individuals.”); Selected Division of

Enforcement Accomplishments: December 2016 –

December 2020, SEC.gov (last modified Mar. 6, 2023),

https://tinyurl.com/3x9abw72

(Commission

has

“returned approximately $3.6 billion to harmed

investors” since 2016). And the Commission is

lavishly praised for them by the media, advocacy

groups, and (most crucially) the politicians who

ultimately determine the agency’s budget.

See

Jonathan R. Macey, The Distorting Incentives Facing

the U.S. Securities and Exchange Commission, 33

Harv. J. L. & Pub. Pol’y 639, 643–46 (2010) (“It

certainly appears that the SEC is carrying out its

(enforcement) duties so as to maintain a base of

support within the Congressional budget process.”

26

(internal quotation marks omitted)). With its mission

and funding at stake, it is not hard to fathom the

Commission’s incentives to win cases and pad its

numbers. Cf. Ward v. Vill. of Monroeville, 409 U.S. 57,

60 (1972) (“[T]he mayor’s executive responsibilities for

village finances may make him partisan to maintain

the high level of contribution from [fines imposed by]

the mayor’s court.”).

The Commission also has strong jurisprudential

temptations to rule in favor of its Enforcement

Division prosecutors whenever possible. By doing so,

the Commission can steer the development of

securities law in its favor, establishing a body of selfserving “precedent” it can then use to its advantage

when litigating subsequent cases in federal courts—

where, as noted above, the same Enforcement Division

prosecutors represent the agency as its counsel—or

when extracting settlements. See Rakoff, Is the SEC

Becoming a Law Unto Itself?, supra (expressing

concern about the Commission using administrative

adjudication to undermine the impartial development

of securities law); Joseph A. Grundfest, Fair or Foul?

SEC Administrative Proceedings and Prospects for

Reform Through Removal Legislation, 85 Fordham L.

Rev. 1143, 1148 (2016) (by litigating administratively,

the SEC seeks to control the interpretation of federal

securities laws); cf. Aetna Life Ins. Co. v. Lavoie, 475

U.S. 813, 824–25 (1986).

When the Commission’s adjudication concludes

with the usual (and largely predictable) result of a

final decision in its own favor, the respondent may

seek review of the decision in a federal court of

appeals, 15 U.S.C. § 78y, but that review is

27

circumscribed. The Commission’s conclusions of law

are typically entitled to significant deference and

courts frequently acquiesce to the Commission’s selfserving views of securities law. See VanCook v. SEC,

653 F.3d 130, 140 n.8 (2d Cir. 2011) (SEC’s

interpretation of securities law “trumps” Second

Circuit precedent (quoting Nat’l Cable & Telecomms.

Ass’n v. Brand X Internet Servs., 545 U.S. 967, 982

(2005))); SEC v. Tex. Gulf Sulphur, Co., 401 F.2d 833,

848 (2d Cir. 1968) (adopting SEC’s novel

interpretation that insider trading constitutes fraud

in violation of Exchange Act Section 10(b)). Moreover,

the Commission’s factual findings—often rubberstamped from the initial ALJ hearing—are conclusive

if supported by “substantial evidence,” 15 U.S.C.

§ 78y(a)(4), a notoriously undemanding standard

permitting reversal only where “no reasonable

factfinder could reach a contrary conclusion.” Chen v.

Gonzales, 470 F.3d 1131, 1134–41 (5th Cir. 2006).

Federal court review is thus often an empty promise.

The resulting reality of the Commission’s

administrative adjudication process is that the deck is

stacked heavily against the respondent from start to

finish, with the burden of proof effectively on the

respondent rather than the government, where it

rightly belongs in this kind of quasi-criminal

prosecution. Cf. Patterson v. New York, 432 U.S. 197,

211 (1977) (“[T]he universal rule in this country [is]

that the prosecution must prove guilt beyond a

reasonable doubt.”). As a former ALJ put it, “the

burden was on the people who were accused to show

that they didn’t do what the agency said they did.”

Eaglesham, SEC Wins with In-House Judges, supra.

And the cumulative effect is predictable: Most

28

respondents, with the looming threat of a process

skewed against them, understandably cry uncle

rather than risking costly hearings and years of uphill

appeals.

See Urska Velikonja, Are the SEC’s

Administrative Law Judges Biased? An Empirical

Investigation, 92 Wash. L. Rev. 315, 340, 346–47

(2017); see also Choi, 34 Yale J. on Reg. at 16

(confirming empirically hypothesis “that the SEC

would use its additional enforcement powers under

the Dodd-Frank Act as leverage to obtain greater

monetary penalties in administrative proceedings”).

Evidence shows that a very high percentage of

Commission enforcement actions settle before final

resolution, with some suggesting that the Commission

“currently settles approximately 98% of its

enforcement cases.” SEC v. Moraes, No. 22-cv-8343,

2022 WL 15774011, at *2 n.5 (S.D.N.Y. Oct. 28, 2022)

(quoting Luis A. Aguilar, Commissioner, SEC,

Remarks Before the 20th Annual Securities and

Regulatory Enforcement Seminar (Oct. 25, 2013),

https://www.sec.gov/news/speech/2013-spch102513laa).

Perhaps even more significantly, studies show that a

very high percentage of cases settle as soon as they are

initiated and without further proceedings.

See

Cornerstone Rsch., SEC Enforcement Activity: Public

Companies and Subsidiaries, Fiscal Year 2022 Update

5 (2022) (showing that 93 percent of cases brought

against public companies and their subsidiaries were

filed and simultaneously settled). The extremely high

settlement rate strongly suggests that the procedural

backdrop is unfair to the accused, and the ability to

seek judicial review is all but ephemeral. The

Commission’s procedures are not only one-sided they

are also outcome dispositive: Having stacked the deck

29

against respondents, the Commission forces them to

fold.

*

*

*

The Commission’s campaign against Jarkesy—

reminiscent of the rule by prerogative that our

nation’s Founders sought to abandon—culminated in

a summary adjudicative process that was drenched

with institutional bias and dispensed with multiple

layers of constitutional safeguards. According to the

government, there is nothing to see here because,

when disaggregated and examined in isolation, the

relevant constitutional boundaries, in each and every

instance, are being only incrementally transgressed as

compared to past cases. But the Constitution is not

something to be so readily cast aside. Determining

whether the Commission’s adjudications under the

Dodd-Frank scheme comply with the Constitution

requires more than piecing together precedents that

already represent the outermost limits of acceptable

departures from constitutional baselines. The Court

should instead recognize that the combined

infractions in this case (and others)—the adjudication

of private rights, the unlawful delegation of powers,

and the improper removal restrictions—render the

statute and the Commission’s administrative process

far beyond what the Constitution conceivably permits.

30

CONCLUSION

The Court should affirm the judgment below.

Respectfully submitted,

Frank J. Bailey

President

PIONEER PUBLIC

INTEREST LAW CENTER

185 Devonshire Street

Suite 1101

Boston, MA 02110

Ashley C. Parrish

Counsel of Record

KING & SPALDING LLP

1700 Pennsylvania Ave. NW

Washington, DC 20006

(202) 737-0500

aparrish@kslaw.com

I. Cason Hewgley IV

KING & SPALDING LLP

1100 Louisiana Street

Suite 4100

Houston, TX 77002

Counsel for Amicus Curiae

October 18, 2023