A Supreme Court case that could reshape the government.

SEC v. Jarkesy is about to grab everyone's attention.

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 11 minutes.

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SEC v. Jarkesy could reshape the federal government. Plus, an under the radar story about retirements and a chance to ask a question.

Quick hits.

Israel and Hamas extended their ceasefire deal an additional two days as Qatar, Egypt and the U.S. continue to broker negotiations. 20 more hostages will be released in exchange for 60 more Palestinian prisoners. (The extension)
The United States and 18 other nations released guidelines for Artificial Intelligence development in hopes of keeping systems safe from rogue actors. (The guidelines)
U.S. home sales fell 5.6% month over month in October but remain up 17.7% year over year. (The numbers)
The suspect who shot and injured three Palestinian American college students pleaded not guilty to attempted murder charges. One of the three students has been released from the hospital. (The latest)
Amazon surpassed UPS and FedEx as the largest U.S. delivery business in 2022. (The change)

Today's topic.

Securities and Exchange Commission v. Jarkesy. On Wednesday, the Supreme Court will hear a three-part case on the constitutionality of the Securities and Exchange Commission (SEC). Because of an unusual decision by the U.S. Court of Appeals for the 5th Circuit, the Supreme Court is going to be evaluating three distinct challenges to the SEC at the same time. The situation arose after the 5th Circuit ruled 2-1 in favor of three separate arguments, invalidating each aspect of the SEC's operations that were being challenged. If the ruling were to go unaddressed, Congress would have to substantially change portions of the law based on the 5th Circuit's ruling, hence the Supreme Court's decision to take them all up together.

Court watchers have said a complete affirmation of the 5th Circuit's decision would be the most impactful administrative law decision of the last half-century. Additionally, Jarkesy is a particularly complicated case. So today we're going to do our best to explain it, break down the arguments and provide the best commentary from the right and left. Our explanations have been heavily sourced from SCOTUSblog and Law.com, two great (and free) sources for understanding complex Supreme Court cases.

Back up: The Securities and Exchange Commission (SEC) was created after the infamous Wall Street crash of 1929 to protect investors, enforce the law, and prevent market manipulation. This case involves hedge fund founder and investment advisor George Jarkesy. In 2013, the SEC found that Jarkesy and his firm committed securities fraud, misrepresented how their funds were run, and that Jarkesy paid himself and his partner fraudulently high fees. The SEC then ordered him to pay $300,000 in fines and $700,000 of repayment.

Jarkesy took the SEC to court, arguing that its process for fining him was unconstitutional and that Congress does not have the authority to empower the SEC to charge him in an administrative court. Jarkesy, a conservative activist and radio talk show host, rallied support for his case and garnered national attention.

Now the case comes before the Supreme Court, with three main constitutional questions at hand.

First is whether Congress can give the SEC the power to decide whether a case should be pursued within the agency or in a federal court. Currently, the federal government employs about 2,000 administrative law judges (ALJs) who hear cases brought by certain federal agencies in courts called Article I tribunals. Article I tribunals are distinct from Article III tribunals, which are federal district or circuit courts that involve juries. However, ALJs sitting on Article I tribunals can have their rulings appealed to federal district or circuit courts (as was done in this case).

The government argues that the Supreme Court has repeatedly recognized congressional power to delegate decisions to federal agencies about where the enforcement of civil and criminal proceedings should take place. Jarkesy argues that the power to assign a claim to an ALJ is "quintessentially legislative in nature" and therefore Congress cannot determine that a case like his should be heard either by an ALJ or an Article III tribunal — rather, it can only create two separate actions. He is arguing that if there is no restraint on the agency's decision of where to try the case, the agency effectively takes legislative power that it is not constitutionally granted. The argument that Congress cannot delegate its power to another entity is known as the “nondelegation” doctrine.

Second is whether Congress is authorized to adjudicate administrative proceedings that impose monetary penalties. Broadly speaking, the Seventh Amendment states that defendants have a right to a trial by jury in “common law” suits. Common law is a body of law deriving from court decisions and precedents developed over many centuries in English courts and adopted by colonial Americans. It is distinct from statutory law, or laws created by acts of Congress or a state legislature (like the Congressional act that created the SEC).

However, the Seventh Amendment has several exceptions. The one pertinent to this case is the public rights doctrine, which allows administrative agencies like the SEC (through Article I tribunals) to impose monetary penalties without a jury. The government is arguing that Congress can create new obligations by statute, and because the statutes relevant to this case were unknown at the time common law precedent was set they fall under the public rights doctrine, meaning an ALJ can rule on them without a jury.

Meanwhile, Jarkesy is broadly arguing for an eradication of the public rights doctrine, making the case that a catalyst for the American Revolution was the British crown's practice of imposing statutory penalties without a jury. His main point is that the Supreme Court has recently rejected similar cases involving things like bankruptcy code, which implies that the Court should interpret Congress's power to assign new statutory causes of action to administrative tribunals as more limited.

Third is whether the Constitution allows Congress to give the SEC's ALJs protection from removal, which many court watchers consider to be Jarkesy's strongest line of argument. The challenge rests on the idea that the President of the United States should have command and control over the entire executive branch, meaning that he can fire every single employee or at least have the power to fire the boss of those employees. This is called the theory of the unitary executive.

In 2010, the Supreme Court's decision in Free Enterprise Fund v. Public Company held that the president's executive power over a government board was limited when that board’s members were protected by multiple levels of tenure. Chief Justice John Roberts ruled that a president cannot fulfill his constitutional duty if he is unable to oversee officers assigned to execute their duties. Jarkesy is arguing that the Merit Systems Protection Board, a government panel that reviews the dismissal of administrative law judges, violates the standard set in Free Enterprise Fund v. Public Company by creating multiple protections for those judges.

The government is arguing that while the Free Enterprise Fund ruling applied to policymakers, the question of whether it should apply to adjudicators was largely left open in Roberts's 2010 ruling. Now the government is arguing that tenure protection for judges is necessary in an administrative state to provide any semblance of a fair process.

You can read more about these arguments here and here.

Today, we’re going to break down some arguments from the left and right about this case, then my take.

What the right is saying.

The right supports Jarkesy’s argument that his constitutional right to a trial by jury was violated by the SEC’s in-house enforcement proceedings.
Some frame the case as a significant opportunity to curtail the power of government agencies.
Others go further, saying a ruling in favor of Jarkesy would strike a blow to the administrative state.

The Wall Street Journal editorial board said the case “could vindicate a legal protection against the administrative state that the Founders fought for.”

“At stake in SEC v. Jarkesy is a bedrock constitutional principle that colonists fought to defend in the American revolution: the right to a trial by jury,” the board wrote. “The SEC tries to muddy the public-private distinction by arguing that public rights are at stake whenever the government sues on behalf of the ‘public’ to enforce laws. But as Mr. Jarkesy points out, the SEC is seeking to deprive him of a core right for a common-law offense that he allegedly committed against other private citizens.

“The historical record supports his argument. Today’s administrative tribunals resemble those that the British government used to punish colonists and religious dissidents before the revolution,” the board added. “Progressives say a ruling for Mr. Jarkesy would gut the administrative state, which is what they always say. But the SEC and other federal agencies could continue to litigate cases in-house that involve truly public rights such as veterans benefits and asylum claims. But they would have to go to federal court to impose civil penalties for common-law offenses.”

In The Washington Post, George F. Will argued the case will have “momentous implications for government power.”

If the court rules in favor of Jarkesy, “the constitutional right of access to courts will be vindicated, constitutionally dubious delegations of congressional power will be curtailed, and administrative state agencies will have to respect the separation of powers. Let us hope for what progressives fear: the end of government as they have transformed it,” Will said. “Many targets of SEC enforcement quickly settle cases that the SEC assigns not to a regular court with a neutral judge but to its in-house tribunals. This practice is analogous to prosecutors overcharging defendants to coerce them into plea bargains, vitiating their right to jury trials.”

“By resisting such abuses, Jarkesy, like the Institute for Justice, is defending the nation’s constitutional structure against unaccountable agencies operating as a fourth branch of government. Jarkesy is asking the Supreme Court to demonstrate, for the benefit of everyone but administrative state bureaucrats, something that Alexander Hamilton said (in Federalist 78) would be required to defend the Constitution against depredations by the elected branches: an ‘uncommon portion of fortitude.’”

In her SCOTUS Ladies blog, Anastasia Boden noted that the case is “one of a few big administrative law cases the Court has taken up this term.”

The SEC’s “in-house proceedings lack vital due process protections (no jury, relaxed evidentiary rules, guilt is determined by preponderance of the evidence) and are heard before ALJs who are impermissibly enmeshed with the enforcement staff. Worse yet, all appeals are heard before the Commissioners, the same people who authorize the enforcement actions in the first place and have therefore prejudged the evidence,” Boden wrote.

The issues at the core of this case “have been targets of those seeking to push back against the growth of the behemoth administrative state for some time. Congress is all too eager to delegate away its power to administrative agencies so it can avoid any political blowback. Critics of this regime argue that in many cases, Congress is impermissibly delegating its legislative power to the executive branch in violation of Article I and the Constitution’s separation of powers. This non-delegation doctrine has really only enjoyed one good year at the Court, but some justices (namely, Justice Gorsuch) have recently signaled their willingness to reinvigorate it.”

What the left is saying.

The left is deeply concerned about the prospect of the court ruling in favor of Jarkesy.
Some say this case is really about helping Trump exert complete control over the executive branch if he wins reelection.
Others say that both Congressional and federal agency power would be imperiled if Jarkesy prevails.

In Vox, Ian Millhiser said the court “could help make Trump’s authoritarian dreams reality.”

“We are talking about a federal agency that has existed since the Roosevelt administration, and whose governing statutes haven’t changed in any relevant way for more than a dozen years. Nevertheless, an especially right-wing panel of the United States Court of Appeals for the Fifth Circuit purported to find three entirely different constitutional flaws that somehow no one else has ever noticed before,” Millhiser wrote. “None of the three rationales the Fifth Circuit offered for neutering the SEC are especially persuasive, but one of them is grounded in a pet project of the conservative Federalist Society known as the ‘unitary executive’ — a project for which the current Court’s GOP-appointed majority has shown a great deal of sympathy.

“There is a risk, in other words, that at least some of the Fifth Circuit’s effort to light this decades-old agency on fire could succeed, with implications that stretch far beyond securities fraud. A sweeping decision affirming the Fifth Circuit could potentially enable former President Donald Trump to stack the federal civil service with MAGA loyalists, should he become president again,” Millhiser said. “If the Court comes for ALJs in the Jarkesy case, however, that will be far more than a symbolic step toward the unitary executive theory… a decision striking down these ALJs would destroy much of the government’s ability to adjudicate cases.”

In The Atlantic, Noah Rosenblum suggested the outcome of the case “could destroy the government.”

“The right-wing legal movement’s target is the ‘administrative state’ — the agencies and institutions that set standards for safety in the workplace, limit environmental hazards and damage, and impose rules on financial markets to ensure their stability and basic fairness, among many other important things. The case, Securities and Exchange Commission v. Jarkesy, threatens all of that. Terrifyingly, this gambit might succeed,” Rosenblum said. “Jarkesy’s most far-reaching constitutional argument is built on the ‘nondelegation doctrine,’ which holds that there may be some limits on the kinds of powers that Congress can give to agencies.”

“This is wild stuff. Not long ago, a lawyer would have been laughed out of court for making such nondelegation claims. Today, they’d have a good chance of destroying the federal government’s administrative capacity—taking down its ability to protect Americans’ health and safety while unleashing fraud in the financial markets,” Rosenblum wrote. Still, “Jarkesy’s challenge might succeed. Arguments like his have been rejected by federal courts many times already. But the federal judiciary has drastically changed in recent years, and the Supreme Court with it — opening the possibility of a new, friendly reception to these absurd legal claims.”

In The Center for American Progress, Devon Ombres argued the case represents a “threat to Congressional and agency authority.”

“If the Supreme Court upholds this extreme ruling on ALJs, it could pose an existential threat to federal agencies that protect Americans and make determinations on the government benefits they are owed. For example, these judges play important roles in getting Americans the Social Security benefits they are owed, safeguarding their right to join a union or bargain over wages, keeping them safe and unharmed at work, and regulating the safety and cost of U.S. energy sources,” Ombres said.

“And if the court upholds this ruling on the nondelegation doctrine, it will be the first time in nearly a century — and only the third time ever — that this long-discredited legal theory has been used to strike down federal law. It would show that the court is seeking to limit Congress’ powers and put its policy preferences above those of elected officials,” Ombres added. “Additionally, if the Supreme Court resurrects the nondelegation doctrine, it would create a previously nonexistent tool to aggregate power to the judiciary and curtail Congress’ ability to legislate.”

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. If you have feedback, criticism, or compliments, don't unsubscribe. Write in by replying to this email, or leave a comment.

First off, Jarkesy is guilty of fraud and the government needs to have some way to punish him for it.
Jarkesy’s challenge under the unitary executive theory sounds strong, but I doubt the other two challenges will gain traction.
The Roberts court will probably make a narrow ruling — but I really don’t know how or what to root for.

To me, the most under-discussed part of this case is the fact that Jarkesy appears to be very guilty of fraud and screwing over his investors. Whatever the court decides, we should all be unified in a desire to make it easy to punish people who commit fraud like this. That simple fact is lost in the scholarly legal arguments here, but I don’t want to lose sight of the reality that this guy is a crook, responded to getting caught with an audacious challenge to the SEC’s existence, and has now managed to get himself in front of the Supreme Court.

With that said, I'm not shy about saying "I don't know" when I don't know, and today, well… I don’t know. I'm genuinely unsure how the court is going to parse these arguments, and especially unsure how it will land on the unitary executive question. This kind of law is so detailed and complicated that I can't offer any of my opinions with total confidence — even the most seasoned scholars of this kind of law seem to be divided, hence Jarkesy’s appearance before the Supreme Court. That being said, I do view each of these arguments with different degrees of skepticism.

When this case was at the conservative 5th Circuit Court of Appeals, Jarkesy's arguments were accepted in a 2-1 decision. The dissenting judge was a staunch conservative twice appointed by Republicans, and his dissent was strong enough to give me pause about Jarkesy's odds in front of the Supreme Court.

I find the general consensus that I've read persuasive, which is that Jarkesy's strongest arguments come from the theory of the unitary executive in challenge number three. The other two challenges just fall flat. The idea that Congress cannot delegate enforcement power to the SEC just doesn't pass a basic sniff test to me, which is Jarkesy’s first challenge. There is a reason nondelegation doctrine hasn't been used to strike down any laws in nearly 100 years, which I think the court is about to spell out.

As for the second challenge, there seems to be a long history of cases where the Supreme Court has made it clear when and where juries are required and when and where they aren't. In principle, I agree with Anastasia Boden about the dubious nature of administrative courts and the need to reform them. I also agree with her description of a Congress that is delegating far too much of its power and duties away to a "behemoth administrative state." But I also think the precedent and case law works against Jarkesy.

Atlas Roofing v. OSHA, a case decided in 1977, provides a significant precedent that suits brought under federal statutes can be heard by administrative law judges without a jury. Furthermore, there is over 200 years of history of common law being separated from statutory law, and I'd be pretty shocked if the court broadened the scope of what cases require juries to include something like the securities fraud case in which Jarkesy was tried.

That brings us to the unitary executive question. The reason this argument is striking is its simplicity: A president is the chief executive, and they should have broad control over the executive branch. If a president can't do something as simple as fire an employee in the executive branch, it feels as if they are being deprived of a fundamental power granted to them by the Constitution. That, paired with the precedent set in the 2010 Free Enterprise Fund v. Public Company Accounting Oversight Board ruling, makes me think Jarkesy might get some traction here.

Of course, as Ian Millhiser pointed out (under "What the left is saying"), the logical extreme of the theory of the unitary executive is that a president could get elected and then lay off the entire federal workforce if they wanted to. That doesn't seem like a safe or reasonable way for the government to function, which is why so many good arguments against the theory have been crafted over time. But I suspect the theory will find some friendly ears on this court.

The Roberts court had tended toward incrementalism, and I doubt it will take any of these three arguments to their logical extremes. Given the makeup of the court, I think a much more likely outcome is that Jarkesy scores a narrow but significant victory that limits agency and administrative power but causes the least amount of disruption to the federal government. How will the court reach that conclusion? I’ll say it again: I really don’t know.

Remember!

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Your questions, answered.

We're skipping the reader question today to give our main story some extra space. Want to have a question answered in the newsletter? You can reply to this email (it goes straight to my inbox) or fill out this form.

Under the radar.

There have been a slew of congressional retirements amid increased partisanship, gerrymandering, and infighting. Nearly 40 members of Congress have already said they are planning to retire ahead of the 2024 elections, already an unusually high number, and according to many reporters that is just the beginning. While most of the retirements are in safely Republican or Democratic districts, a handful will open the door for competitive races. Rep. Earl Blumenauer (D-OR) cited dysfunction as his reason for leaving. "I deeply respect some of my colleagues on both sides of the aisle, but it's harder and harder to work with them," he told CBS News. "The unending chaos in the House really takes up most of the oxygen." CBS News has the story and The New York Times has the list of retirees (paywall).

Numbers.

784. The number of enforcement actions filed by the SEC in fiscal year 2023, a 3% increase over fiscal year 2022.
162. The number of "follow-on" administrative proceedings filed by the SEC in fiscal year 2023 seeking to bar or suspend individuals from certain functions in the securities markets, an 8% increase over fiscal year 2022.
133. The number of orders obtained by the SEC in fiscal year 2023 to bar individuals from serving as officers and directors of public companies.
$5 billion. The amount of financial remedies obtained by the SEC in fiscal year 2023, the second highest for a year in the agency’s history.
$930 million. The amount returned to harmed investors in fiscal year 2023.
$600 million. The amount of whistleblower awards issued by the SEC in fiscal year 2023, the most ever awarded in one year.
18,000. The number of whistleblower tips received by the SEC in fiscal year 2023, an approximately 50% increase over fiscal year 2022.

The extras.

One year ago today we covered the Colorado Springs shooting.
The most clicked link in yesterday's newsletter was the ad in the free version for the credit-card-sized phone charger, which is now 30% off with code TANGLE at checkout.
Root him out: 877 Tangle readers responded to our poll asking if Rep. George Santos (R-NY) should be expelled from Congress, with 90% saying yes, 7% saying no, and 3% saying they were unsure or had no opinion. "Nobody should be prevented from facing consequences for their actions simply because there is no precedent for it. The best time to start rooting out corruption is yesterday," one respondent said.
Nothing to do with politics: An Australian man trying to scare off magpies accidentally created a shrine for the birds to worship.
Take the poll. Which, if any, of the challenges in SEC v Jarkesy do you find convincing? Let us know!

Have a nice day.

Aarrav Anil is a student in India with an interest in robotics. The 17-year-old has represented his country in over 20 robotics competitions, but perhaps his most impressive engineering feat came in his spare time. Aarav’s 70-year-old uncle has Parkinson’s and can’t eat with a spoon without splattering, which gave Aarav an idea. With motors, sensors, microelectronics, and a 3D printer, he designed a special spoon that can correct for hand tremors to allow his uncle to eat without splattering. Now Aarav is testing his design at the RV College of Physiotherapy in Bengaluru, India, and trying to improve it so more people can use it. “I’ve been fine-tuning the design based on the college’s feedback — that it needs to be waterproof so that it can be washed without damaging all the electronics inside; that it must be detachable so it can be cleaned and replaced by a fork; and the spoon needs to be deeper to hold more food,” Aarrav said. Good News Network has the story.