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**MAY 20, 2022**
Kuttner on TAP
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**** Another Sweeping Far-Right Court Ruling
Following the practice of ignoring precedent, an appellate ruling seeks
to destroy consumer and investor protection.
On Wednesday, the US Court of Appeals for the Fifth Circuit issued a
ruling that, if upheld by the Supreme Court, could literally shut down
the regulatory authority of large parts of the federal government. In
Jarkesy v. SEC
, the
Fifth Circuit overturned a penalty ordered by an SEC administrative law
judge on the grounds that the Seventh Amendment to the Constitution
guarantees the right to a jury trial. The Court, ignoring decades of
Supreme Court precedent, held that Congress's delegation of such
authority to the SEC is unconstitutional.
Jarkesy operated two hedge funds. After an extensive investigation by
the SEC, the administrative law judge found that the hedge funds had
misrepresented facts and risks in order to deceive investors, and
ordered a fine of $300,000, a disgorgement of $685,000 in ill-gotten
gains, and barred Jarkesy from a variety of securities activities. But
the court reversed the orders as unconstitutional.
The federal government uses administrative law judges in some 30
different agencies. There are about 2,000 such judges, who are civil
servants, about twice the number of federal district court judges. They
do everything from adjudicating benefits disputes at the Social Security
Administration to issuing findings and penalties at other regulatory
agencies.
If all these questions must go before a jury, much of what the far right
disparages as the "administrative state" is out of business. This is of
course the Fifth Circuit's broader agenda, and it chimes with
anti-regulation views of Chief Justice Roberts. The SEC can appeal to
the Supreme Court, but good luck to that.
The irony is that regulatory agencies are finally doing their jobs. The
Assistant Attorney General for Antitrust, Jonathan Kanter
,
recently gave an interview to the Financial Times promising a long
overdue crackdown on abuses by private equity. But such efforts are now
on a collision course with far right courts that have been half a
century in the making. I wish I could report that the architect of the
Jarkesy ruling was a Trump appointee. But no, Judge Jennifer Walker
Elrod was appointed by George W. Bush.
Here's the broader point. If the Democratic Party had not gotten into
bed with Wall Street under Carter, Clinton and Obama, Democrats might
have remained the national majority party-and those far-right judges
never would have been appointed. Back when the judiciary was more
supportive of regulation, the SEC might have closed down private equity
before it even gained a foothold by ruling that you can't take over a
company using its own assets as collateral.
Now, despite Biden's attempt to revive regulatory agencies with
assertive public-minded appointees, good Democratic regulators will be
hobbled by the sins of bad Democratic presidents that led to even worse
Republican ones, and a legacy of reactionary courts.
~ ROBERT KUTTNER
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