We The People

The Future of the Securities & Exchange Commission

November 30, 2023

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On Wednesday, November 29, the Supreme Court heard oral arguments in Securities and Exchange Commission v. Jarkesy. The case involves three constitutional challenges to the agency, involving the right to a jury trial; the nondelegation doctrine; and the scope of executive power. In this episode, Noah Rosenblum, assistant professor of law at NYU, and Ilan Wurman, assistant professor at the Sandra Day O’Connor College of Law at Arizona State University, join Jeffrey Rosen to break down the arguments in the case, which pits the federal regulatory agency against a hedge fund manager charged with securities violations. They break down the constitutional claims at play, and discuss how the case could affect the future of the SEC and the modern administrative state as we know it. 

 

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Today’s episode was produced by Lana Ulrich, Bill Pollock, and Samson Mostashari. It was engineered by Bill Pollock. Research was provided by Lana Ulrich, Samson Mostashari, Cooper Smith, and Yara Daraiseh.    

 

Participants  

Noah Rosenblum is an assistant professor of law at New York University School of Law, where he was previously the Samuel I. Golieb Fellow in Legal History. Rosenblum works on state and federal administrative law, constitutional law, and legal history. He wrote a recent piece in The Atlantic on the SEC case, “The Case That Could Destroy the Government.”

Ilan Wurman is an associate professor at the Sandra Day O’Connor College of Law at Arizona State University, where he teaches administrative law and constitutional law. He is the author of a casebook on Administrative Law Theory and Fundamentals (2021), as well A Debt Against the Living: An Introduction to Originalism (2017), and The Second Founding: An Introduction to the Fourteenth Amendment (2020).

Jeffrey Rosen is the president and CEO of the National Constitution Center, a nonpartisan nonprofit organization devoted to educating the public about the U.S. Constitution. Rosen is also a professor of law at The George Washington University Law School and a contributing editor of The Atlantic.  

 

Additional Resources:

Excerpt from Interview: Ilan Wurman on possible consequences of a decision against the SEC on the Seventh Amendment question would be.

Ilan Wurman: So let me start with the Deputy Solicitor General's argument that as long as Congress creates the statute and allows a federal officer to enforce it, it's a public right. So it's something to that effect. That cannot possibly be right and even Justice Ketanji Brown Jackson was like, "This argument is circular." Right? The whole question in this case is what cases can be assigned to the executive branch, which can't and you're saying, the government was saying, "Well, anytime Congress chooses to assign it to the executive branch, it can do it because then it's not the case within the meaning of the Seventh Amendment or instut-" That's totally circular and Justice Jackson had some of the best questions. She's not gonna rule with the Conservatives, but she had some of the best questions.

It just can't be true, that line because when you think about it, every U.S. attorney, a federal prosecutor would meet that definition. They prosecute offenses and crimes, pursuant to statutes the Congress enacts and no one thinks that somehow a federal prosecutor could bring an action and another federal prosecutor can adjudicate that action and just decide. I mean, no one would think that that's correct. So if the modern doctrine can justifiably diverge from that formalist conception that I started with, it has to have something to do with technical expertise, narrow and specialized areas, which is how the doctrine actually labels it. Congress can't just give it to the executive branch. It has to be in a narrow and specialized and technical area, which is all probably wrong again, an originalist or formalist matter, but it certainly a better line than well, if Congress decides, then, then Congress gets to decide, which is totally circularly.

As to the ramifications, this was asked time and again as you mentioned at the oral argument. Something like 80% of adjudicators are Social Security adjudicators. Social Security is a public right. It's public benefits. Public welfare benefits are the quintessential example of a public right because it's not the government coming and asking you for something out of your bank account or for your real property or for your liberty or for your life. If you want something for the government, the government says, "No, you're not entitled to Social Security benefits." And again, sovereign immunity says they don't have to let you sue them. That is a classic public right, it's a public benefit.

By the way, Noah, I think licensing airwaves is also a public right. I've done some work on this in the Fourteenth Amendment context because it's a fixed national resource, and I do think that's a public right. But to the extent there are agencies that do involve lots of private rights, Federal Trade Commissions, Securities and Exchange Commission, probably the FTC for campaign finance violations. Could those be tried in an agency? So those cases would all be implicated. And I will say that there is a solution. There's a solution to this. There are two solutions.

One is to the extent of these have to be in Article III courts. Okay? With or without juries. What's to stop Congress from creating a system in which administrative law judges make findings of fact and conclusions of law and submit those as reports and recommendations, the objections to wish will be reviewed de novo by a real district court. I mean, you get the administrative expertise, it's solve as 95% of the issues because you're not gonna object to every single issue, you're gonna object discreetly. This is exactly what magistrate judges do, have, have their reports and recommendations or review de novo by a district court. It's how bankruptcy court's private rights claims are adjudicated by a federal district court. Why not do that for agency adjudicators?

Now, it doesn't solve the jury trial problem if the relief that is sought is legal rather than equitable, but for them, as I think Noah alluded to this and Chris Walker and I think a colleague of his has a paper saying, why not allow people who are subject to this jury trial right to choose to remove their case from the agency to federal court? And if they choose not to remove their case, well, consent waves the jury trial right. And a lot of people might prefer to be in front of an agency adjudicator. So between those reported recommendation process and this right of removal and consent I think you solve, you know, a lot of the problem to the extent it's a big problem anyway which is not clear again because most of these adjudicators are in public benefits programs.

Excerpt from Interview: Noah Rosenblum explains why the third argument, the fact that the adjudicator is non-removable violates the Constitution, is unconvincing.

Jeffrey Rosen: Well, let us now turn to the third of the big arguments in the case, and that is that the internal adjudicator first heard Jarkesy's case had too much independence and therefore violates the requirements of Article II of the Constitution, that the president take care that the laws be faithfully executed. In other words, the fact that the adjudicator is non-removable, the argument goes, it violates the Constitution. Noah, tell us about that argument and why you believe that it's not only unconvincing, but that it's a misreading of the previous opinions of the great champion of executive power, Chief Justice William Howard Taft.

Noah Rosenblum: So there's something puzzling about this argument from the get-go 'cause if you think back to the beginning of our conversation together, we were talking about the Seventh Amendment and the importance of the jury trial and the idea is something like, we wanna make sure that you are having your case heard by an independent adjudicator who's not subject to political pressure. That's part of why a jury trial is so important and why you can go to court. And that intuitively I think resonates with a lot of us. It feels weird to have somebody be both prosecutor and judge. So it's awfully strange, and one might even say, there's an awful lot of chutzpah and then saying, actually the problem with the internal adjudicator that I was in front of is that they were not accountable to the president, that they were too politically independent.

So to come back to my recurring theme that U.S. to take the legal issues seriously, but we should not lose track of the underlying argument here, which seems to be less about legal issues than just I wanna keep committing fraud and not have to pay the price for it. The juxtaposition of these two arguments, right, "I want an independent court to hear my case. And also the guy who heard my case isn't independent enough," makes me think that maybe he's less concerned about the rule of law values that are motivating some of our conversations.

That's just an opening observation. Okay, what's the merit of the legal argument? Well, it goes something like this, just as you alluded to, Jeff, under Article II of the Constitution, the president has responsibility to take care that the law be faithfully executed. And under a line of cases that I argue in a piece that's actually coming out just next month with Andrea Katz that the kind of foundational decision here in court president is a 1926 case written by William Howard Taft called Myers v. United States. That case, it sort of fallen into desuetude, but it's been revived in the last 13 years by the Roberts Court and, and that line of cases suggests that the way for the president to faithfully execute the law is to have some kind of control over everyone in the government who is not either part of the legislative branch or part of the judiciary.

So this is sometimes called the unitary theory of the executive. And the administrative law judges are a problem here because they cannot be removed by the President of the United States, except according to statute for cause. And it gets even messier because technically because of the kind of tenure the administrative law judges enjoy, the any complaints against them are heard by a different board in the government that ensures merit protection, which may or may not run afoul of a different set of arguments that come out of a case called Free Enterprise Fund that come out against these two layers of removal protection. But the underlying logic is the same as the argument in Myers, which is that for the president to fulfill his constitutional responsibilities, he needs some kind of control over everyone in the government.

And the reason removal is so central here is that if you think about what constitutional tools the president might have for control, there's nothing in the Constitution that would lead you to believe that if the president gives an order to somebody outside of the army in time of war, that that person needs to follow the order. So, Ilan has actually written about this, but importantly, the Constitution gives the president the power to request opinions in writing from Cabinet officers, but not to like tell them to do something.

So if you're Taft and you believe that the president needs control to fulfill his constitutional responsibilities, but there isn't any language in the Constitution that says you get control, well, what can you do for control? And that's where removal comes in. And the idea is something like, well, if I can fire you, then I can threaten to fire you. And with the threat to fire you, I can get you to do what I want you to do. So in the case of Myers v. United States, right, there's a postman. Fire the postman and if you don't fire the postman, I'll fire you. Oh, well, then I better fire the postman 'cause otherwise the president will fire me.

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