A Judicial Ruling Challenges the SEC’s Illegal Power

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The Fifth Circuit says the agency violates the Constitution by acting as prosecutor, judge and jury.

The U.S. Constitution’s separation of powers was meant to ensure that government power would never become concentrated in the hands of a few. But since Franklin D. Roosevelt’s threat to “pack the Court” in 1937, the federal judiciary has aided and abetted the rise of an all-powerful administrative state. The separation of powers has since dissolved to a point that would have dismayed the Framers—and should worry all Americans.

Now the U.S. Court of Appeals for the Fifth Circuit has taken what could be a historic step toward restoring the Constitution’s checks and balances, in the case of Jarkesy v. SEC. The Securities and Exchange Commission acts as rulemaker, prosecutor and judge for America’s securities laws. It may have a solid case for fraud against investor George Jarkesy, but the powers and perks the agency has accumulated pose the constitutional problem.

The Constitution vests legislative power in Congress, executive power in the president, and judicial power in the federal courts. But today the executive branch does most of the legislating and adjudication in the federal government, while, paradoxically, administrative agencies beyond the control of the president (or anyone else) wield much of the executive power. Checks-and-balances are dissolving in all directions, with the executive branch absorbing the powers of the other branches into an administrative leviathan, even as executive power become shielded from democratic control.

In the case of Mr. Jarkesy, the SEC used a provision in the Dodd-Frank law that allowed it to seek civil penalties for fraud either in normal federal courts or in internal proceedings before its own administrative law judges. Those ALJs are civil servants who can only be removed for good cause by the commissioners of the SEC, who themselves can only be removed for good cause.

Read the full op-ed here.