Fifth Circuit Federal Court of Appeals Holds SEC Administrative Proceedings Unconstitutional

In Jarskey v. SEC, the Fifth Circuit Court of Appeals (covering Texas, Mississippi, and Louisiana) held that administrative enforcement proceedings before administrative law judges (ALJs) are fundamentally unconstitutional for three reasons. First, ALJ proceedings deny the accused of the Seventh Amendment right to a jury trial in an Article III court. Second, administrative proceedings constitute an improper delegation of legislative power which violates the Constitution’s Article I vesting clause. Third, ALJs are statutorily insulated from executive removal in violation of Article II’s Take Care clause. The decision highlights severe problems some federal courts see with the independence and authority of administrative agencies and demonstrates a clear willingness to reduce an agency’s ability to enforce their statutory authority. The panel’s decision could possibly be overturned by the Fifth Circuit en banc or the Supreme Court, should the government choose to seek further review.

Click here to read a detailed client alert from Ropes & Gray on the Fifth Circuit’s decision.