Elon Musk, CEO of aerospace manufacturer Space X, and veteran American investor Mark Cuban have filed a joint amicus brief with the U.S. Supreme Court, challenging the Securities and Exchange Commission’s (SEC) practice of conducting internal trials without juries. The brief, which also garnered support from figures like Phillip Goldstein and Nelson Obus, aims to overhaul the SEC’s current administrative proceedings. It asserts that the use of in-house judges in these proceedings violates the Seventh Amendment rights of defendants.
The legal action is set against the backdrop of the SEC v. Jarkesy case. George Jarkesy, the plaintiff, claims that his Seventh Amendment rights were compromised by the SEC’s internal adjudication process. The SEC’s method involves an administrative law judge appointed by the commission, effectively consolidating the roles of judge, jury, and executioner. A previous ruling by the 5th U.S. Circuit Court of Appeals had sided with Jarkesy, a decision now being appealed by the Biden administration.
Musk’s attorneys stated that the SEC’s approach “contravenes the protections” guaranteed by the U.S. Constitution. They argued that the SEC, acting as the sole fact-finder determines both liability and punishment without involving a jury.
Interestingly, the SEC shifted its approach between 2013 and 2014, opting for more internal proceedings after facing a series of losses in insider trading cases in federal courts. However, the SEC admitted in April 2022 to improper access to privileged files, including those related to the Jarkesy case.
Despite the legal tussle, the SEC has rolled out new regulations effective from July 26, requiring public companies to disclose significant data breaches within a four-day window. The Supreme Court is scheduled to hear the Biden administration’s appeal on November 29. The case’s outcome could have broad implications for federal governance and SEC enforcement practices. Musk and Cuban continue to urge the court to maintain the 5th Circuit’s decision.
Meanwhile, cryptocurrency attorney John E Deaton has publicly criticized the U.S. agency’s credibility. Deaton’s critique was backed by recent Appellate Court rulings that questioned the SEC’s actions as “arbitrary and capricious.” He argued that the SEC is not the best source for information about itself due to its “confirmation bias and self-serving statements.”
