In a notable collaboration, Elon Musk and Mark Cuban have jointly submitted an amicus brief to the Supreme Court, challenging the Securities and Exchange Commission’s (SEC) practice of conducting in-house trials without juries. Their argument centers around the contention that these administrative proceedings result in disparate outcomes for defendants facing the SEC. Consequently, this practice raises concerns, particularly regarding the potential infringement upon the right to a jury trial as guaranteed by the Seventh Amendment.
This challenge arises against the backdrop of a specific case, SEC v. Jarkesy, wherein the plaintiff, George Jarkesy, asserts that his Seventh Amendment rights were compromised. Jarkesy contends that the SEC’s internal adjudication process, presided over by an administrative law judge appointed by the commission, undermines these constitutional rights. Effectively, this setup entails a single entity acting as the judge, jury, and ultimate decision-maker.
SEC Admits Fault as Billionaires Call for Reforms
Notably, Musk and Cuban have drawn attention to a notable shift in the SEC’s approach between 2013 and 2014. They have observed that the SEC increasingly opted to handle a greater number of cases through in-house proceedings rather than before federal courts. This change followed a series of unsuccessful insider trading cases presented before juries. However, this method of bypassing jury trials has been accompanied by numerous concerns. Notably, in April 2022, the SEC acknowledged instances where its personnel had improperly accessed files in various cases, including Jarkesy’s.
In addition to these oversights, the SEC has implemented new regulations pertaining to public companies. These regulations, effective as of July 26, now require companies to promptly disclose significant data breaches within a four-day timeframe. Furthermore, it is worth highlighting that the SEC identified deficiencies in its internal controls that led to inappropriate file sharing in 2021, but only reported it a year later.
Intensifying Dispute Arises Over SEC Judicial Practices
On the contrary, Justice Department Solicitor General Elizabeth Prelogar contends that the 5th Circuit’s ruling in favor of Jarkesy was misguided. She asserts that Congress did not violate the Seventh Amendment by granting the SEC the authority to initiate administrative proceedings for civil penalties. Consequently, she urges the Supreme Court to reconsider its decision.
Presently, the CEO renowned for his transformative impact on Twitter, referred to as X, is facing his third significant legal challenge from the financial regulatory body. This follows previous lawsuits in 2018 and 2019. The authority is now seeking the intervention of a federal court to compel testimony from Musk regarding his takeover of Twitter. The focus of this inquiry lies in his public statements pertaining to the transaction, as disclosed in judicial documents.
Nonetheless, Musk and Cuban steadfastly maintain their stance. They implore the justices to uphold the verdict of the 5th Circuit. Their legal representatives argue that choosing administrative proceedings over the option of federal court juries contradicts the SEC’s stated mission. Furthermore, such choices have the potential to adversely affect investors and the markets that the SEC has pledged to safeguard.