News Release: Supreme Court’s Ruling Against In-House Judicial Experts Threatens Enforcement


Jun. 27, 2024

Carter Dougherty

Supreme Court’s Ruling Against In-House Judicial Experts Threatens Enforcement

Washington, D.C. – Today’s ruling by the Supreme Court curbing the Securities and Exchange Commission’s (SEC) ability to hear complicated cases in front of expert administrative judges will drive litigation into the federal courts where companies and lobbyists will be able to, as they increasingly do, shop around for a pro-industry judge.

“Over a hundred cases a year now will be transferred from a tribunal presided over by actual securities experts, to a court that may not be impartial or fair,” said Andrew Park, senior policy analyst for Americans for Financial Reform Education Fund. “Businesses should not be allowed to choose the outcome they seek by steering the cases into the right court.”

For decades, administrative courts and judges with specialized expertise in complicated securities laws have appropriately heard cases involving securities violations. Today’s 6-3 Supreme Court ruling in SEC v. Jarkesy now gives businesses and wrongdoers more Constitutional rights than most consumers and employees in America and sets a bad precedent by chipping away at an agency’s ability to meaningfully hold corporations accountable.

George Jarkesy was alleged to have lied to brokers and more than 100 investors, overvaluing his company’s assets and lying about the accounting firm used to audit his company’s fund. Instead of complying with the law, paying a $300,000 civil penalty, and turning over $685,000 in illegally gained profits, Jarkesy brought his case to the notoriously pro-industry Fifth Circuit and got the favorable ruling he desired. The Supreme Court agreed with the Fifth Circuit, finding the SEC tribunal unconstitutionally violated his Seventh Amendment right to a jury trial.

This Seventh Amendment right has not stopped successive Supreme Courts from allowing financial services and other companies from forcing consumers into arbitration clauses, found in many take-it-or-leave-it consumer and employee contracts. When these people are hurt by corporate wrongdoing, they are forced into a private and secretive system, presided over by an arbitrator who is typically paid for by the business or employer.

“Unlike Jarkesy, these people will never be able to appeal their case or even be given a reason for the decision,” said Christine Chen Zinner, senior policy counsel at AFR-EF. “And they are more likely to be struck by lightning than prevail in forced arbitration.”

The actions of the Fifth Circuit – and now the new caseload coming as a result of the Jarkesy decision – have drawn attention to the practice of judge-shopping, in which industry interests file lawsuits in specific judicial districts, even though the case has little to do with that geographic area.

After the Fifth Circuit ignored a new policy from the Judicial Conference of the United States, the body governing procedure in American courts, Senate Majority Leader Chuck Schumer introduced legislation to curtail the practice. This combination of judge-shopping and new limits on administrative courts underscore the need for Congress to pass the Schumer legislation as soon as possible.

“We don’t let candidates choose their voters, and companies should not be able to handpick judges to evade federal oversight,” said Kimberly Fountain, consumer financial justice field manager at Americans for Financial Reform. “The judicial system is supposed to be fair, not a system where corporate plaintiffs choose their verdict.”