5Cir Issues Historic Rebuke of SEC ALJ System

May 19, 2022

Congress has given the Securities and Exchange Commission substantial power to enforce the nation's securities laws. It often acts as both prosecutor and judge, and its decisions have broad consequences for personal liberty and property. But the Constitution constrains the SEC's powers by protecting individual rights and the prerogatives of the other branches of government. This case is about the nature and extent of those constraints in securities fraud cases in which the SEC seeks penalties.  
George R. Jarkesy, Jr., and Patriot28, L.L.C., Petitioners, v. Securities and Exchange Commission, Respondent (Opinion, United States Court of Appeals for the Fifth Circuit 20-61007/ May 18,. 2022)

The SEC OIP

On March 22, 2014, the Securities and Exchange Commission ("SEC") filed an Order Instituting Administrative Proceedings  ("OIP") In the Matter of John Thomas Capital Management Group LLC, D/B/A Patriot28 LLC, George R. Jarkesy Jr., John Thomas Financial, Inc., and Anastasios "Tommy" Belesis, Respondents (Order Instituting Administrative and Cease and-Desist Proceedings and Notice Of Hearing; '33 Act Rel. 9396; '34 Act Rel. 69208; Inv. Adv. Act Rel 3571; Inv. Co. Act Rel 30435; Admin. Proc No. 3-15255 / March 22, 2013). As alleged in the Summary portion of the OIP:

1. This case concerns fraudulent conduct by Jarkesy, the manager of two hedge funds formerly known as the John Thomas Bridge and Opportunity Fund LP I ("Fund I") and John Thomas Bridge and Opportunity Fund LP II ("Fund II," collectively the "Funds"), and the Funds' adviser, formerly known as JTCM. As alleged herein, Jarkesy also elevated the interests of Respondents JTF and Belesis over those of the Funds by steering millions of dollars in bloated fees to the broker-dealer.

2. Jarkesy and JTCM launched Fund I in 2007 and Fund II in 2009. Since September 2011, the Funds have been known as Patriot Bridge and Opportunity Fund LP I and LP II and the adviser has been known as Patriot28 LLC.1

3. The Funds invest in three asset classes: bridge loans to start-up companies; equity investments principally in microcap companies; and life settlement policies. The Funds' assets under management peaked at approximately $30 million at the end of 2011.

4. Among other things, Jarkesy and JTCM:  

a. recorded arbitrary valuations without any reasonable basis for certain of the Funds' largest holdings, thus causing the Funds' performance figures to be false and misleading and their own compensation to be falsely inflated;

b. marketed the Funds on the basis of false representations about, among other things, the identities of their auditor and prime broker; and

c. breached their fiduciary duty of full and fair disclosure to the Funds by failing to disclose their repeated favoring of the pecuniary interests of Belesis, the chief executive officer of JTF, and JTF, which served as the Funds' placement agent.

5. While they shared the same brand name, JTCM (the adviser) purported to be wholly independent of JTF (the placement agent).

6. Notwithstanding representations that he was "responsible for all of the investment decisions" of the Funds, Jarkesy capitulated to Belesis' aggressive demands regarding certain investment decisions. JTCM's purported independence from JTF was a sham designed to enrich Belesis at the expense of the Funds, and to insulate him from future accusations of wrongdoing.

7. In addition to capitulating to Belesis' demands regarding certain Fund activities, Jarkesy and JTCM abandoned their fiduciary duty to the Funds by negotiating arrangements whereby borrowing companies would divert large fees to JTF and Belesis using proceeds received from the Funds. For example, in connection with certain bridge loans made by Fund I, Belesis (acting through JTF) received hundreds of thousands of dollars in "fees" for providing little or no services.

8. Jarkesy and JTCM placed the interests of Belesis and JTF above the interests of the Funds, thereby violating the fiduciary duty that they owed to the Funds. For example, after being berated by Belesis for not delivering enough fees, Jarkesy promised him in an email in late 2009, "We will never retreat we will never surrender and we will always try to get you as much [fees] as possible, Everytime [sic] without exception!"

Jarkesy DDC Complaint

In response to the SEC's OIP, Jarkesy and Patriot28, LLC filed a Complaint in the United States District Court for the District of Columbia ("DDC") seeking emergency injunctive and declaratory relief to prevent the SEC's administrative proceeding ("AP") from going forward. George R. Jarkesy, Jr. and Patriot28, LLC, Plaintiffs, v. United States Securities and Exchange Commission, Defendant (Complaint, DDC, 14-CV-00114, January 29, 2014). As set forth in the Preliminary Statement in the Complaint:

2. The SEC charged Plaintiffs with securities law violations and seeks lifetime securities-industry and officer-and-director bars and $100 million in punitive "civil" money penalties, but has denied Plaintiffs their fundamental rights of due process, jury trial, equal protection, and has usurped a legislative prerogative, violating the constitutional separation of powers. Among the most egregious of the SEC's violations is the clear prejudgment of the AP, memorialized in a Commission order - issued and published prior to the hearing on the merits of the case - containing pages of factual findings against Plaintiffs and a formal legal finding that they are liable for securities fraud.

DDC Order and Opinion

On June 10, 2014, the DDC issued an Order dismissing without prejudice Plaintiffs' claims for lack of subject matter jurisdiction, and denied Plaintiffs' Motion for Leave to File a First Amended Complaint and Motions for Preliminary and Permanent Injunctive Relief and Motion to Expedite.  In offering its rationale, DDC explained in its Opinion that:

The statutory and regulatory regime under which the SEC's Enforcement Division brought the instant matter against the plaintiffs precludes this Court from exercising subject matter jurisdiction to hear the plaintiffs' claims. The Exchange Act, which the plaintiffs are accused of violating, provides that "[a] person aggrieved by a final order of the [SEC] . . . may obtain review of the order in the United States Court of Appeals." 15 U.S.C. § 78y(a)(1). This statute presents two insurmountable obstacles for the plaintiffs' case in this Court: first, no final order has yet been entered by the SEC, which raises substantial questions about the ripeness of this action for review; and, second, even were this action ripe, federal court review must take place in one of the courts of appeals.

With respect to the first issue, the plaintiffs' counsel implicitly admitted at oral argument that the SEC has issued no final order binding on the plaintiffs, referring to the Order-against their co-respondents-as separate and distinct from "the next [order] that would be coming up, [which] one will have a completely preclusive effect and will trigger a cascade of lawsuits" against the plaintiffs. See Tr. 50:19-23. In admitting that no final ALJ decision has been entered against them, let alone a finding by the SEC's Commissioners, the plaintiffs appear to concede that they are not yet persons "aggrieved by a final order of the [SEC]." 15 U.S.C. § 78y(a)(1). In any event, since no District Court would have subject matter jurisdiction over this matter even if it were ripe for decision, see 15 U.S.C. § 78y(a)(1), the Court need not address this issue any further.

Page 7 of the DDC Memorandum Opinion
https://www.govinfo.gov/content/pkg/USCOURTS-dcd-1_14-cv-00114/pdf/USCOURTS-dcd-1_14-cv-00114-0.pdf

DCCir Appeal

Plaintiffs appealed the DDC ruling to the United States Court of Appeals for the District of Columbia Circuit ("DCCir") George R. Jarkesy, Jr. and Patriot28, LKC, Appellants, v. Securities And Exchange Commission, Appellee (Opinion, DCCir14-CV-00114; No. 14-5156 / September 29, 2015). In affirming DDC, the DCCir preliminarily explained that:

The Securities and Exchange Commission brought an administrative proceeding against George Jarkesy, Jr., charging him with securities fraud. That proceeding remains ongoing. In the meantime, Jarkesy filed this action in federal district court seeking the administrative proceeding's termination. He argues that the proceeding's initiation and conduct infringe his constitutional rights in several ways. The district court dismissed his action for lack of subject-matter jurisdiction. The court concluded that Congress, by establishing a detailed statutory scheme providing for an administrative proceeding before the Commission plus the prospect of judicial review in a court of appeals, implicitly precluded concurrent district-court jurisdiction over challenges like Jarkesy's.

We agree with the district court and affirm its judgment. In Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994), the Supreme Court set forth a framework for determining when a statutory scheme of administrative and judicial review forecloses parallel district-court jurisdiction. The ultimate question is whether Congress intended exclusivity when it established the statutory scheme. Applying the considerations outlined in Thunder Basin and its progeny, we find the answer here is yes. The result is that Jarkesy, instead of obtaining judicial review of his challenges to the Commission's administrative proceeding now, can secure judicial review in a court of appeals when (and if) the proceeding culminates in a resolution against him.

Page 2 of the DCCir Opinion

Read the full-text, above-cited documents:
Supreme Court Opinion

http://brokeandbroker.com/PDF/LuciaSCtOpinion.pdf

KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, ALITO, and GORSUCH, JJ., joined. THOMAS, J., filed a concurring opinion, in which GORSUCH, J., joined. BREYER, J., filed an opinion concurring in the judgment in part and dissenting in part, in which GINSBURG and SOTOMAYOR, JJ., joined as to Part III. SOTOMAYOR, J., filed a dissenting opinion, in which GINSBURG, J., joined.  As set forth in the Court's "Syllabus":

The Securities and Exchange Commission (SEC or Commission) has statutory authority to enforce the nation's securities laws. One way it can do so is by instituting an administrative proceeding against an alleged wrongdoer. Typically, the Commission delegates the task of presiding over such a proceeding to an administrative law judge (ALJ). The SEC currently has five ALJs. Other staff members, rather than the Commission proper, selected them all. An ALJ assigned to hear an SEC enforcement action has the "authority to do all things necessary and appropriate" to ensure a "fair and orderly" adversarial proceeding. 17 CFR §§201.111, 200.14(a). After a hearing ends, the ALJ issues an initial decision. The Commission can review that decision, but if it opts against review, it issues an order that the initial decision has become final. See §201.360(d). The initial decision is then "deemed the action of the Commission." 15 U. S. C. §78d-1(c). 

The SEC charged petitioner Raymond Lucia with violating certain securities laws and assigned ALJ Cameron Elliot to adjudicate the case. Following a hearing, Judge Elliot issued an initial decision concluding that Lucia had violated the law and imposing sanctions. On appeal to the SEC, Lucia argued that the administrative proceeding was invalid because Judge Elliot had not been constitutionally appointed. According to Lucia, SEC ALJs are "Officers of the United States" and thus subject to the Appointments Clause. Under that Clause, only the President, "Courts of Law," or "Heads of Departments" can appoint such "Officers." But none of those actors had made Judge Elliot an ALJ. The SEC and the Court of Appeals for the D. C. Circuit rejected Lucia's argument, holding that SEC ALJs are not "Officers of the United States," but are instead mere employees -- officials with lesser responsibilities who are not subject to the Appointments Clause. 

Held: The Commission's ALJs are "Officers of the United States," subject to the Appointments Clause. Pp. 5-13. 

(a) This Court's decisions in United States v. Germaine, 99 U. S. 508, and Buckley v. Valeo, 424 U. S. 1, set out the basic framework for distinguishing between officers and employees. To qualify as an officer, rather than an employee, an individual must occupy a "continuing" position established by law, Germaine, 99 U. S., at 511, and must "exercis[e] significant authority pursuant to the laws of the United States," Buckley, 424 U. S., at 126. 

In Freytag v. Commissioner, 501 U. S. 868, the Court applied this framework to "special trial judges" (STJs) of the United States Tax Court. STJs could issue the final decision of the Tax Court in "comparatively narrow and minor matters." Id., at 873. In more major matters, they could preside over the hearing but could not issue a final decision. Instead, they were to "prepare proposed findings and an opinion" for a regular Tax Court judge to consider. Ibid. The proceeding challenged in Freytag was a major one. The losing parties argued on appeal that the STJ who presided over their hearing was not constitutionally appointed. 

This Court held that STJs are officers. Citing Germaine, the Freytag Court first found that STJs hold a continuing office established by law. See 501 U. S., at 881. The Court then considered, as Buckley demands, the "significance" of the "authority" STJs wield. 501 U. S., at 881. The Government had argued that STJs are employees in all cases in which they could not enter a final decision. But the Court thought that the Government's focus on finality "ignore[d] the significance of the duties and discretion that [STJs] possess." Ibid. Describing the responsibilities involved in presiding over adversarial hearings, the Court said: STJs "take testimony, conduct trials, rule on the admissibility of evidence, and have the power to enforce compliance with discovery orders." Id., at 881-882. And the Court observed that "[i]n the course of carrying out these important functions," STJs "exercise significant discretion." Id., at 882. 

Freytag's analysis decides this case. The Commission's ALJs, like the Tax Court's STJs, hold a continuing office established by law. SEC ALJs "receive[ ] a career appointment," 5 CFR §930.204(a), to a position created by statute, see 5 U. S. C. §§556-557, 5372, 3105. And they exercise the same "significant discretion" when carrying out the same "important functions" as STJs do. Freytag, 501 U. S., at 882. Both sets of officials have all the authority needed to ensure fair and orderly adversarial hearings-indeed, nearly all the tools of federal trial judges. The Commission's ALJs, like the Tax Court's STJs, "take testimony," "conduct trials," "rule on the admissibility of evidence," and "have the power to enforce compliance with discovery orders." Id., at 881-882. So point for point from Freytag's list, SEC ALJs have equivalent duties and powers as STJs in conducting adversarial inquiries. 

Moreover, at the close of those proceedings, SEC ALJs issue decisions much like that in Freytag. STJs prepare proposed findings and an opinion adjudicating charges and assessing tax liabilities. Similarly, the Commission's ALJs issue initial decisions containing factual findings, legal conclusions, and appropriate remedies. And what happens next reveals that the ALJ can play the more autonomous role. In a major Tax Court case, a regular Tax Court judge must always review an STJ's opinion, and that opinion comes to nothing unless the regular judge adopts it. By contrast, the SEC can decide against reviewing an ALJ's decision, and when it does so the ALJ's decision itself "becomes final" and is "deemed the action of the Commission." 17 CFR §201.360(d)(2); 15 U. S. C. §78d-1(c). Pp. 5-11. 

(b) Judge Elliot heard and decided Lucia's case without a constitutional appointment. "[O]ne who makes a timely challenge to the constitutional validity of the appointment of an officer who adjudicates his case" is entitled to relief. Ryder v. United States, 515 U. S. 177, 182. Lucia made just such a timely challenge. And the "appropriate" remedy for an adjudication tainted with an appointments violation is a new "hearing before a properly appointed" official. Id., at 183, 188. In this case, that official cannot be Judge Elliot, even if he has by now received a constitutional appointment. Having already both heard Lucia's case and issued an initial decision on the merits, he cannot be expected to consider the matter as though he had not adjudicated it before. To cure the constitutional error, another ALJ (or the Commission itself) must hold the new hearing. Pp. 12-13. 

868 F. 3d 1021, reversed and remanded. 


2020 SEC Administrative Proceeding Opinion

Following the DDC's 2015 Opinion, the SEC moved forward. In the Matter of John Thomas Capital Management Group LLC, d/b/a Patriot28 LLC; and George R. Jarkesy Jr., Respondents (Opinion; '33 Act Rel. 10834 '34 Act Rel. 89775; Inv. Adv. Act Rel 5572; Inv. Co. Act Rel. 34003; Admin. Proc No. 3-15255 / September 4, 2020). 
https://www.sec.gov/litigation/opinions/2020/33-10834.pdf 
In summarizing the posture of the case before it after Respondents John Thomas Financial, Inc. and 
Anastasios "Tommy" Belesis settled with the SEC, the federal regulator asserted that :

This proceeding concerns fraudulent conduct by George R. Jarkesy, Jr. and John Thomas Capital Management Group LLC ("JTCM"), the unregistered investment adviser that he owned, in the offer and sale of interests in two hedge funds: John Thomas Bridge and Opportunity Fund LP I ("Fund I") and John Thomas Bridge and Opportunity Fund LP II ("Fund II"). Jarkesy founded JTCM in 2007, and together they launched Fund I in 2007 and Fund II in 2009. JTCM served as the Funds' general partner; Jarkesy managed and controlled JTCM and the Funds. Together, the Funds had about 120 investors. Fund I accepted new investors from 2007 to 2010 (for a total of about $20 million assets under management), and Fund II accepted new investors from 2009 to 2010 (for a total of about $4 million assets under management). 

Respondents appeal from an administrative law judge's initial decision finding that they violated, and aided and abetted and caused violations of, the antifraud provisions of the federal securities laws by (i) misrepresenting the identity of the Funds' auditor and prime broker, and the Funds' investment parameters and safeguards; and (ii) overvaluing the Funds' holdings to increase management and performance fees.1 The ALJ barred Jarkesy from the securities industry and from participating in the offering of a penny stock; ordered Respondents to cease and desist from antifraud violations; and ordered Respondents to pay, jointly and severally, disgorgement of $1,278,597, plus prejudgment interest, and third-tier civil penalties of $450,000. On appeal, Respondents challenge the ALJ's findings of fact and conclusions of law, and raise numerous constitutional and procedural objections; the Division of Enforcement cross-appeals and requests an accounting and greater monetary sanctions.  

Based on our independent review of the record, we find that Respondents violated Section 17(a)(2) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) thereunder, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. We impose bars on Jarkesy; cease-and-desist orders on Respondents; civil penalties of $300,000 on Respondents jointly and severally; and disgorgement of $684,935.38 plus prejudgment interest on JTCM. 

at Page 3 of the SEC 2020 Opinion

In what comes off as a somewhat blatant doubling-down, as it were, the SEC offers this fillip [Ed: footnotes omitted]:

G. The Equal Protection Clause 

Respondents assert that the Commission violated the Equal Protection Clause for two reasons. First, they claim that the Commission's choice of an administrative forum violates their "fundamental right to a jury trial guaranteed by the Seventh Amendment" and therefore is subject to strict scrutiny. But, as discussed above, there is no right to a trial by a jury in the context of an administrative proceeding, and thus strict scrutiny does not apply. 

Second, Respondents invoke a "class-of-one" theory, under which someone who does not assert the deprivation of another constitutional right and is not a member of a protected class nonetheless may assert an equal protection claim by showing that he or "she has been intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment." We reject this claim as well. "Nothing in Dodd-Frank or the securities laws explicitly constrains the [Commission's] discretion in choosing between a court action and an administrative proceeding."  In Engquist v. Oregon Department of Agriculture, the Court held that a class-of-one claim does not apply to "forms of state action . . . which by their nature involve discretionary decision-making based on a vast array of subjective, individualized assessments." And both the Sixth and Seventh Circuits have held that Engquist precludes such challenges to prosecutors' decisions about whom, how, and where to prosecute. Relying on these authorities, the Commission has previously held that its inherently discretionary decision to enforce the securities laws in one forum rather than another is not, as a matter of law, susceptible to attack on a class-of-one theory. Respondents have supplied no persuasive reason for the Commission to revisit these decisions. 

Respondents' equal protection claim fails for another reason. They have not shown "an extremely high degree of similarity" between themselves and others purportedly similarly situated. They identify other cases in which claims were pursued under the same statutory provisions in federal district court. But the mere fact that another case involves the same provisions of the law does not demonstrate that the respondent is being treated differently from others similarly situated for purposes of equal protection.

H. Due process 

Finally, Respondents argue that the Commission violated their right to due process because the Commission's administrative proceedings do not allow Respondents to assert counterclaims for constitutional violations or to develop an evidentiary record of such alleged violations. But Respondents have availed themselves of the opportunity to assert constitutional violations and develop a record before the law judge, through petitions for interlocutory review to the Commission, and on appeal to the Commission of the law judge's initial decision. Thus, as the D.C. Circuit has explained, Respondents' "challenges lie firmly within the Commission's ordinary course of business," which has "proven fully capable of considering [respondents'] attacks on the fairness of [this] proceeding." And there is "no dispute that [they] will have the opportunity to raise all of their constitutional claims before a Court of Appeals." Accordingly, we find no due process violation. 

at Page 44 - 46 of the SEC 2020 Opinion

5Cir Opinion: May 18, 2022

Moving on from the 2015 DCCir Opinion and the SEC's 2020 Opinion, we find the dispute in yet another federal circuit court: George R. Jarkesy, Jr., and Patriot28, L.L.C., Petitioners, v. Securities and Exchange Commission, Respondent (Opinion, United States Court of Appeals for the Fifth Circuit ("5Cir"), 20-61007 / May 18,. 2022)
https://brokeandbroker.com/PDF/Jarkesy5Cir.pdf. As the 5Cir Opinion picks up the thread:

Petitioners' proceedings moved forward. The ALJ held an evidentiary hearing and concluded that Petitioners committed securities fraud. Petitioners then sought review by the Commission. While their petition for Commission review was pending, the Supreme Court held that SEC ALJs had not been properly appointed under the Constitution. Lucia v. SEC, 138 S. Ct. 2044, 2054-55 (2018). In accordance with that decision, the SEC assigned Petitioners' proceeding to an ALJ who was properly appointed. But Petitioners chose to waive their right to a new hearing and continued under their original petition to the Commission. 

The Commission affirmed that Petitioners committed various forms of securities fraud. It ordered Petitioners to cease and desist from committing further violations and to pay a civil penalty of $300,000, and it ordered Patriot28 to disgorge nearly $685,000 in ill-gotten gains. The Commission also barred Jarkesy from various securities industry activities: associating with brokers, dealers, and advisers; offering penny stocks; and serving as an officer or director of an advisory board or as an investment adviser. 

Critical to this case, the Commission rejected several constitutional arguments Petitioners raised. It determined that: (1) the ALJ was not biased against Petitioners; (2) the Commission did not inappropriately prejudge the case; (3) the Commission did not use unconstitutionally delegated legislative power-or violate Petitioners' equal protection rights-when it decided to pursue the case within the agency instead of in an Article III court; (4) the removal restrictions on SEC ALJs did not violate Article II and separation-of-powers principles; and (5) the proceedings did not violate Petitioners' Seventh Amendment right to a jury trial. Petitioners then filed a petition for review in this court.

at Pages 3 - 4 of the 5Cir Opinion

On appeal to the 5Cir, Petitioners alleged three constitutional defects:

(1) Petitioners were deprived of their constitutional right to a jury trial; (2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide it with an intelligible principle by which to exercise the delegated power; and (3) statutory removal restrictions on SEC ALJs violate Article II.

at Page 4 of the 5Cir Opinion

Following argument, 5Cir found that:

(1) the SEC's in-house adjudication of Petitioners' case violated their Seventh Amendment right to a jury trial; (2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power, in violation of Article I's vesting of "all" legislative power in Congress; and (3) statutory removal restrictions on SEC ALJs violate the Take Care Clause of Article II. Because the agency proceedings below were unconstitutional, we GRANT the petition for review, VACATE the decision of the SEC, and REMAND for further proceedings consistent with this opinion. 

at Page 2 of the 5Cir Opinion

The Anchor of a Civil Jury

In a powerful and compelling Opinion, the 5Cir touches on many keystones of our constitutional government and reiterates the many rights and Due Process protections inherent in that construct. Foremost in 5Cir's consideration was the primacy of the right to a civil jury [Ed: footnotes omitted]:

Thomas Jefferson identified the jury "as the only anchor, ever yet imagined by man, by which a government can be held to the principles of its constitution." Letter from Thomas Jefferson to Thomas Paine (July 11, 1789), in The Papers of Thomas Jefferson 267 (Julian P. Boyd ed., 1958). And John Adams called trial by jury (along with popular elections) "the heart and lungs of liberty." The Revolutionary Writings of John Adams 55 (C. Bradley Thompson ed., 2000); see also Jennifer W. Elrod, Is the Jury Still Out?: A Case for the Continued Viability of the American Jury, 44 Tex. Tech L. Rev. 303, 303-04 (2012) (explaining that the jury is "as central to the American conception of the consent of the governed as an elected legislature or the independent judiciary").  

Civil juries in particular have long served as a critical check on government power. So precious were civil juries at the time of the Founding that the Constitution likely would not have been ratified absent assurance that the institution would be protected expressly by amendment. 2 The Debate on the Constitution 549, 551, 555, 560, 567 (Bernard Bailyn ed. 1993) (collecting various state ratification convention documents calling for the adoption of a civil jury trial amendment); The Federalist No. 83 (Alexander Hamilton) ("The objection to the plan of the convention, which has met with most success in this State [i.e., New York], and perhaps in several of the other States, is that relative to the want of a constitutional provision for the trial by jury in civil cases."); Mercy Otis Warren, Observations on the Constitution (1788), in 2 The Debate on the Constitution 290 (Bernard Bailyn ed. 1993) (worrying that the unamended Constitution would lead to "[t]he abolition of trial by jury in civil causes"); Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 446 (1830) ("One of the strongest objections originally taken against the constitution of the United States, was the want of an express provision securing the right of trial by jury in civil cases."). 

Trial by jury therefore is a "fundamental" component of our legal system "and remains one of our most vital barriers to governmental arbitrariness." Reid v. Covert, 354 U.S. 1, 9-10 (1957). "Indeed, '[t]he right to trial by jury was probably the only one universally secured by the first American state constitutions . . . .'" Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 341 (1979) (Rehnquist, J., dissenting) (quoting Leonard Levy, Legacy of Suppression: Freedom of Speech and Press in Early American History 281 (1960)). Because "[m]aintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence[,] . . . any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care." Dimick v. Schiedt, 293 U.S. 474, 486 (1935). 

at Pages  - 7 of the 5Cir Opinion

Limiting Federal Power

Having carved out the right to a jury trial as a vital barrier against government abuse, 5Cir the considers the delegation of powers to the federal government [Ed: footnotes omitted]:

"We the People" are the fountainhead of all government power. Through the Constitution, the People delegated some of that power to the federal government so that it would protect rights and promote the common good. See The Federalist No. 10 (James Madison) (explaining that one of the defining features of a republic is "the delegation of the government . . . to a small number of citizens elected by the rest"). But, in keeping with the Founding principles that (1) men are not angels, and (2) "[a]mbition must be made to counteract ambition," see The Federalist No. 51 (James Madison), the People did not vest all governmental power in one person or entity. It separated the power among the legislative, executive, and judicial branches. See The Federalist No. 47 (James Madison) ("The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny."). The legislative power is the greatest of these powers, and, of course, it was given to Congress. U.S. Const. art. I, § 1. 

The Constitution, in turn, provides strict rules to ensure that Congress exercises the legislative power in a way that comports with the People's will. Every member of Congress is accountable to his or her constituents through regular popular elections. U.S. Const. art I, §§ 2, 3; id. amend. XVII, cl. 1. And a duly elected Congress may exercise the legislative power only through the assent of two separately constituted chambers (bicameralism) and the approval of the President (presentment). U.S. Const. art. I, § 7. This process, cumbersome though it may often seem to eager onlookers, ensures that the People can be heard and that their representatives have deliberated before the strong hand of the federal government raises to change the rights and responsibilities attendant to our public life. Cf. Rachel E. Barkow, Separation of Powers and the Criminal Law, 58 Stan. L. Rev. 989, 1017 (2006). ("[T]he Framers weighed the need for federal government efficiency against the potential for abuse and came out heavily in favor of limiting federal government power over crime.").

at Pages 19 - 20 of the 5Cir Opinion

Judge Davis Dissents

Judge W. Eugene Davis dissented from the majority decision of Judges Jennifer Walker Elrod and Andrew Stephen Oldham, and, asserted, in part that:

The majority holds that (1) administrative adjudication of the SEC's enforcement action violated Petitioners' Seventh Amendment right to a jury trial; (2) Congress unconstitutionally delegated an Article I legislative power to the executive branch when it gave the SEC the discretion to choose between bringing its enforcement action in an Article III court or before the agency without providing an intelligible principle to guide the SEC's decision; and (3) the removal protections on SEC administrative law judges violate Article II's requirement that the President "take Care that the Laws be faithfully executed." I respectfully disagree with each of these conclusions.

at Page 31 of the 5Cir Opinion

For those of you wondering:
  • Judge W. Eugene Davis was nominated to the 5Cir Ronald Reagan on November 1, 1983
  • Judge Jennifer Walker Elrod was nominated to the 5Cir by George W. Bush on March 29, 2007
  • Judge Andrew Stephen Oldham was nominated to the 5Cir by Donald J. Trump on February 15, 2018