5th Circuit Court Finds SEC Enforcement Unconstitutional [pdf]
The gist of the decision is that the SEC’s imposition of civil penalties and disgorgement violated defendants’ seventh amendment right to a jury trial. Under the seventh amendment, you have a right to a jury trial for any claim that would have been an action at law in the courts of England at the time of the founding, prior to the merger of law and equity.[1] There is an additional principle that so called “public rights,” like Social Security benefits or FCC licenses, need not be adjudicated by a real court (under Article III of the Constitution) but can be adjudicated by the executive branch. The theory is that public benefits are discretionary so the executive branch can decide how to dish them out. So you end up with administrative agencies having internal adjudicating bodies that look very much like courts, but which are not in fact courts.<p>Ordering a party to disgorge gains from fraud is of course not a “public right” but a quintessential legal proceeding that should be brought in a real court.<p>There’s a lot of things administrative agencies do that probably aren’t Constitutional and violate the separation of powers. Executive branch quasi-courts adjudicating claims like fraud is the tip of the iceberg. The Supreme Court upheld these statutes in the mid-20th century under the shadow of FDR’s threat of court packing. The Reagan-era Supreme Court was not inclined to roll those decisions back, but I think you will see the current Supreme Court being much more active on that front.<p>[1] Law courts are the courts we usually think of, with juries. They are the only courts that can award damages. Courts of equity are like the Delaware chancery court—they can award certain equitable relief such as recission of a contract. Today most states and the federal system invest legal and equitable powers in the same courts, but the right to a jury trial arose in England when those courts were distinct.