New Court Ruling Will Reshape
The United States Court of Appeals for the Fifth Circuit issued yet another amazing verdict on
Wednesday. Jarkesy J. v. SEC seeks to dismantle a significant portion of the system that the
federal government employs to enforce laws that have been in place for decades and determine
who is eligible to receive federal benefits. It does this in direct opposition to many Supreme
Court decisions that should have a binding effect on lower courts.
Jarkesydecision Jarkesydecision asserts that the system that the Securities and Exchange
Commission (SEC) utilizes in enforcing federal law to protect the investors against fraud is
unlawful because of at least three distinct reasons the first being that it’s been unlawful for many
years but that nobody recognized this until two highly partisan judges that took liberties with
current laws, found these flaws during Jarkesy. Jarkesy decision.
The scope of the power of Jarkesy can be expansive. It could sever the federal government’s
ability to enforce laws that prevent companies from misleading investors, and it extends much
more than the previous ruling. In addition, the decision could rewrite the procedure used by the
Social Security Administration uses to decide who is eligible for benefits. However, a person will
need to bring a lawsuit again before it happens.
The two judges who comprise the majority of judges, Jennifer WalkerElrod and Andy Oldham
are famous for their interpretation of the law in imaginative and innovative ways to produce
outcomes that are in line with the Republican Party’s policies. Elrod is perhaps most well-known
for her part in an unsuccessful attempt to repeal the Affordable Care Act; Oldham was recently
in the spotlight for his decision to strip companies such as Twitter as well as YouTube of First
Amendment rights and could threaten the entire industry of social media as a result.
Their decision of Jarkesy is mostly attacking administrative law judges (ALJs). A little over 30
Federal agencies employ them to settle disputes that range from whether an investment firm
has cheated its investors, to determining whether a struggling American is eligible for federal
In all, the government of the United States employs close to 22,000 ALJs which is more than
double the number of so-called Article III judges (federal judges chosen by Presidents, and have
a life-long term). If the ALJs are declared to be unconstitutional and Elrod’s majority decision on
Jarkesy suggests that the majority, but not all of them must be declared unconstitutional the
federal government may lose nearly two-thirds of its power to resolve legal disputes, which
could hinder enforcement, while forcing the most vulnerable Americans to wait for years to
determine if they’ll be eligible for Social Security and other benefits.
Elrod unleashes three attacks on the SEC None of them are legally sound.
The dispute that is centered around Jarkesy concerns the manager of a hedge fund accused of
lying to investors in order to acquire around the sum of $24million in funds. According to the
federal government, George Jarkesy and his fund “lied about who audited these funds as well
as who was their principal broker, the type of funds they were invested in, and about how much
they were worth.”
An ALJ who is in charge of enforcement actions initiated by the SEC determined that Jarkesy
was able to commit securities fraud. However, Jarkesy contends that the SEC would only be
able to pursue an action against him in the federal district court which is ruled by an Article III
judge. In a similar vein to Jarkesy’s Elrod’s opinion, the opinion states that the SEC infringed on
lawful provisions of the Constitution in three ways, which are all in contradiction with Supreme
In the first place, Elrod states that cases involving securities fraud have to be heard by district
courts since they can hold jury trials whereas ALJs are not able to conduct jury trials.
Criminal defendants are entitled to the absolute right to a trial on a jury but the rules for civil
lawsuits as well as SEC enforcement actions that are non-criminal procedures that are more
complex. Civil litigants often are entitled to a trial by jury, however, they aren’t usually entitled to
one in lawsuits that are brought through the federal government in order to enforce federal laws.
The most important Supreme Court case is Atlas Roofing v. OSHA (1979) in which the court
ruled that jury trials aren’t necessary in “cases where the Government issued within its own
sovereign power to enforce the public rights that are created by statutes that are within the
authority of Congress to pass.”
Elrod’s decision goes against Atlas Roofing’s. Judge Eugene Davis, a Reagan appointee,
clarifies the reasoning behind his Jarkesy dissension that federal courts “routinely declare that
any enforcement action taken by the Government to enforce a violation of a federal law or
regulation constitutes a ‘public interest which Congress can delegate a [ALJ] to adjudication.”
The second argument is that Elrod asserts she believes that the law of the federal government
which effectively allows the SEC to decide whether or not to bring a specific enforcer’s action in
front of an ALJ or an ALJ is not constitutional. She claims that an agency of the federal
government shouldn’t be able to decide if an enforcement matter will be decided using the “legal
procedures” which are in place within the Article III court, or the slightly different rules of
procedure applicable to an ALJ.
This decision is also in contradiction with the current law. Police officers often make decisions
that are much more significant than deciding what court will hear a particular dispute. And the
Supreme Court’s rulings permit them to do this.
The most important case in this case is the case that is relevant here is United States v.
Batchelder (1979). In the instance, Justice Thurgood Marshall explained to the Court, Congress
enacted two distinct firearms statutes, each of which allowed ” different maximum penalties,”
and effectively allowed prosecutors to decide the statute they would invoke if an infraction by a
criminal suspect was in violation of both. The Court declared that this was acceptable and said
that “the authority that Congress has given to federal prosecutor] isn’t more than the powers
they already have to exercise.”
If Elrod is correct that Congress can’t allow the SEC to decide whether to take certain actions to
enforce before either a district judge or an ALJ It is not certain that the SEC is able to initiate
these enforcement actions. In other words, if it’s not constitutional for Congress to delegate this
decision to the SEC in the first place, then the SEC cannot choose between the two options
accessible to the SEC and is unable to initiate an enforcement action in the court of an Article III
court than in the case of an ALJ.
Three, Elrod claims that ALJs are not permitted to listen to SEC enforcement actions due to the
fact that it’s hard for the President to eliminate them from office.
There’s some irony to this argument since an alternative for conducting SEC proceedings prior
to the ALJ could be to ask the SEC to make a complaint in the district court of the federal
government. District judges in federal courts have life-long appointments and are able to not get
removed from office by the president.
However, her third attack at the SEC is likely to be her most powerful. There’s a body of law that
says that the president is competent to dismiss specific federal employees appointed by the
executive branch. The Article III judge is employed by the judiciary branch, therefore this law is
not applicable to them.
However, the Supreme Court’s ruling to decide Free Enterprise Fund v. PCAOB (2010) indicates
that ALJs aren’t the type of official that presidents can fire at will, particularly in the event that
ALJs only “possess only advisory powers” (that is that they do not have the ability to issue final
decisions and only recommend a course action to a higher-ranking official.
As Judge Davis clarifies in his dissident opinion, the SEC’s team of ALJs is, in fact, has limited
authority. “When An SEC ALJ issues a decision in an enforcement case the decision is, in
essence, an advisory,” Davis writes, because the SEC’s commissioners hold the power to
assume the case and overturn the ALJ’s decision completely. Even if the commissioners do not
decide to do this, “the ALJ’s decision is considered to be the decision by the Commission.'”
Thus it is the commissioners of the SEC that have the authority to make final decisions, not
If the decision of Elrod is confirmed it could plunge a large portion of the federal government into chao
Most likely, at least, the 30 agencies using ALJs will lose their adjudicative powers If Elrod’s
view is held even though Elrod puts a major restriction on her third position.
ALJs work as civil servants who are able to only be dismissed with limited grounds by the
commissioners of the SEC, and only after receiving an inquiry by an agency known as the Merit
Systems Protection Board. Commissioners of the SEC, however, are only dismissed by the
president with reason. As per Elrod and others “SEC ALJs are shielded from the President with
at minimum two layers of cause protection against removal” is in violation of the Constitution.
Similar structures exist at the Social Security Administration, which employs over 1700 ALJs to
resolve disagreements about who is eligible for benefits. As with SEC commissioners The head
of the Social Security Administration “may be removed from office only in response to a
determination from the presidency of incompetence or misdeeds in their office.”
If Elrod’s third attack against the SEC is accurate In other words then it’s probable to be the
case that Social Security’s tiny group of ALJs aren’t allowed to listen to benefits disputes since
they’d be too difficult for President Obama to dismiss.
The inability of the ALJs to hear cases could cause an entire Social Security Administration into
turmoil. It could also cause complete chaos in Federal court systems since Article III courts
simply do not have the necessary personnel to handle all benefits disputes that are currently
dealt with by ALJs.
It is also not a feasible way to create enough seats for these Article III courts to accommodate
this volume of cases. To accomplish this, Congress would have to adopt legislation that could
be filibustered in the Senate — that would create hundreds of judgeships. Then, President Joe
Biden would need to nominate judges, and the Senate must confirm a small number of judges
who will be appointed to these positions.
That would effectively dilute the conservative-dominated federal judiciary with a wave of new
Biden appointees. The possibility that Senate Republicans would permit this to occur -even if
the White House had the capacity to find competent candidates for these newly created
judgeships quickly -is very low.
Elrod and Oldham Elrod and Oldham, or in other words are doing the equivalent of throwing the
equivalent of a Molotov cocktail at the hands of federal authorities. If federal law allows the
same situation, then perhaps their decision is justified. However, their decision isn’t simply an
invitation to chaos. It is also contrary to the decades of law that have been in place.