In the upcoming decision of the highly watched case of SEC v. Jarkesy, the US Supreme Court is set to rule on the applicability of the Seventh Amendment right to a jury trial in securities fraud cases where the Securities Exchange Commission seeks penalties. A ruling in favor of the respondent, George Jarkesy, could potentially create a ripple effect, given that many enforcement agencies have been known to impose hefty penalties through their in-house proceedings.
The focal point of the Jarkesy case is whether a defendant is entitled to have a jury preside over the facts. However, recent oral arguments seem to veer towards the rules that govern in-house agency proceedings. Jarkesy’s counsel highlights that federal rules of evidence are not necessarily observed in agency proceedings, a detail that carries implications for agencies like the SEC, the Board of Immigration Appeals, the Consumer Financial Protection Bureau, and the Federal Trade Commission.
These agencies have their own set of evidence rules, more relaxed than usual, greatly affecting the verdict on the facts. It is worth noting that these relatively relaxed rules were established by Congress decades ago, when agencies did not yet have the power to impose severe civil penalties through in-house proceedings. Research from the Northern Illinois University College of Law highlights the trend of growing penalties sought by the SEC and banking agencies.
The rationale for adopting a more lenient approach towards evidence rules was to foster efficiency and simplicity and to cultivate more informed results. These agency rules, therefore, tend to be constructed in favor of consuming more evidence with fewer restrictions.
However, this more lenient approach to evidence also raises questions about the impartiality and expertise of some administrative law judges (ALJs). With ALJs sometimes transitioning between agencies with vastly different subject areas, their expertise in specific sectors can be questioned.
On top of that, discussions around the fairness of agency proceedings have sprung up due to the informal nature of evidence rules leading to penalties worth millions of dollars imposed on individuals. Congress, being the architect of these rules, holds the power to rectify this issue.
No matter how the Supreme Court rules in SEC v. Jarkesy, U.S., it is evident that Congress can and should intervene in reforming these agency rules to ensure a more equitable process.