Elon Musk and Mark Cuban, unlikely players in a legal drama, have filed a joint amicus brief at the Supreme Court challenging the Securities and Exchange Commission’s (SEC) use of in-house trials. The case in question, SEC v. Jarkesy, raises questions about the constitutionality of in-house judges handling SEC cases. The plaintiff, George Jarkesy, argues that the SEC’s internal adjudication process, presided over by commission-appointed administrative law judges, violates his Seventh Amendment rights.
Musk and Cuban’s amicus brief was filed to express support for Jarkesy’s position. They contend that the SEC’s administrative proceedings, as they are currently structured, result in unequal outcomes for defendants facing SEC enforcement actions. The brief cites a trend from 2013 to 2014 when the SEC increased its use of in-house judges due to a series of jury trial losses in insider trading cases.
On November 29, the Supreme Court will hear the Biden administration’s appeal, arguing that the 5th U.S. Circuit Court of Appeals ruling in favor of Jarkesy would have “massive” consequences across the federal government if not reversed. The 5th Circuit ruled in May 2022 that Jarkesy’s Seventh Amendment rights were violated, and the SEC admitted in April 2022 that its personnel had improperly accessed files in multiple cases, including Jarkesy’s.
Musk and Cuban’s amicus brief points out that the SEC introduced new cybersecurity risk management regulations in July 2022, requiring public companies to disclose “material” data breaches within four days. This regulation came despite the SEC’s own improper file-sharing issues, which were discovered in 2021 but only reported in April 2022. The brief argues that the SEC’s insistence on administrative proceedings when federal court juries are available runs contrary to its mission and harms investors and the markets it is tasked with protecting.
The Justice Department’s Solicitor General, Elizabeth Prelogar, believes that the 5th Circuit’s ruling was in error and that the Supreme Court should reverse it. Musk, Cuban, and others are calling on the Supreme Court to uphold the 5th Circuit’s ruling and “reverse its order of remand to the Commission.”
This case underscores the complex legal issues surrounding the SEC’s use of administrative judges and the need to balance defendants’ rights and the SEC’s enforcement mission. Musk and Cuban’s involvement adds a unique dimension to the case, with the billionaire entrepreneurs advocating for fairness and transparency in the SEC’s actions.
