Among the many, many, many legislative actions in Dodd-Frank, one section gave the Securities and Exchange Commission broader authorization to bring enforcement actions through its internal administrative law judges instead of through federal courts. The SEC decides which cases to bring to the ALJs and which it wishes to bring in federal court. In federal court you can have a jury trial. With the SEC’s ALJs you do not get a jury trial.
If you find this problematic, the Fifth Circuit Court of Appeals agrees with you. With its coverage of Texas, Louisiana and Mississippi, this Court fired a blistering attack on the SEC in the opinion.
Congress has given the Securities and Exchange Commission substantial power to enforce the nation’s securities laws. It often acts as both prosecutor and judge, and its decisions have broad consequences for personal liberty and property. But the Constitution constrains the SEC’s powers by protecting individual rights and the prerogatives of the other branches of government. This case is about the nature and extent of those constraints in securities fraud cases in which the SEC seeks penalties.
The case was launched by the SEC in 2011 against a fund manager for overvaluing fund assets to collect more in fees. The timing of the alleged fraud and SEC litigation is such that the fund manager was not required to be registered with the SEC as an investment adviser. I can’t find a provision in the opinion that talks about whether this distinction matters.
The biggest point in the opinion is that the fund manager was deprived of its constitutional right to a jury trial by the SEC bringing the vase through the administrative law process. The Court hangs its argument on its view that a case of fraud is traditional action of “suits at common law” described in the Seventh Amendment to the Constitution which can include “suits brought under a statute as long as the suit seeks common-law-like legal remedies.” (page 7) The Court points out that fraud prosecutions were regularly brought in English courts at common law. Even though the SEC brought non-monetary remedies against the fund manager that doesn’t invalidate the right to a jury trial.
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