Having just escaped district court consideration of constitutional challenges to the SEC’s use of an administrative proceeding in the Chau/Harding Advisory case, the SEC will now review a number of similar challenges to its administrative adjudicatory process in In re Jarkesy, SEC File No. 15255. The petition for review of respondents John Thomas Capital Management Group and George Jarkesy, which the Commission agreed to hear on December 11, 2014, will be the first opportunity for SEC consideration of a number of constitutional issues since the recent hubbub about the increased use of the administrative court for these kinds of cases. A copy of the Petition for Review is available here: Jarkesy Petition for Review.
The issues raised in the petition are extensive. They include:
- The administrative proceeding is invalid because the Commissioners issued findings of fact and conclusions of law in advance of the hearing.
- The administrative proceeding is invalid because the Commission exercises unguided discretion on the choice of forum for its prosecutions even when they do not involve subject matters outside of the conventional experience of Article III judges, which violates the separation of powers doctrine.
- The decision to require respondents to defend themselves in the administrative court violated the equal protection clause because others similarly situated have not been required to do so and they were deprived them of a Seventh Amendment right to jury trial, which they contend is a fundamental right.
- The assignment of their case to the administrative court violates the equal protection clause under the “class of one” doctrine.
- The proceeding is invalid because ex parte communications between the Division of Enforcement and the Commission were permitted during the discussions of settlements with co-respondents, which violates due process rights to an impartial forum.
- The effective denial of rights under the doctrine of Brady v. Maryland because relevant documents were hidden in a 700gb “document dump” incapable of being reviewed violates due process.
- The refusal to allow respondents to create a record for review of violations of rights is itself a due process violation.
- The requirement that respondents defend themselves within a “truncated” time-period prevented discovery of relevant facts or the opportunity to prepare a defense, which violated due process rights.
Whether any of this stocks is another question entirely. Of course, we can be virtually certain that the Commission itself will give these arguments short shrift. But where the appeals court comes out may be another question. That would be either the Court of Appeals for the D.C. Circuit, or, it would appear, the Fifth Circuit, since the respondents appear to be located in Texas.
December 15, 2014
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