- Elon Musk and Mark Cuban unite to challenge the SEC’s approach to juryless in-house trials.
- The SEC has admitted to personnel accessing files inappropriately in certain cases, including Jarkesy’s.
Billionaires’ Pushback Against SEC’s Internal Adjudication
Elon Musk, the visionary behind Tesla and SpaceX, and entrepreneur Mark Cuban, have combined their voices in presenting a joint amicus brief to the U.S. Supreme Court. Their focus is the Securities and Exchange Commission’s (SEC) controversial method of holding in-house trials devoid of juries. Both innovators emphasize that such internal proceedings result in disparities for SEC defendants.
This operational mode’s legality becomes especially dubious when considering the potential compromise of the Seventh Amendment, which upholds the right to a jury trial.
The catalyst for this unified challenge is the case titled SEC v. Jarkesy. The plaintiff, George Jarkesy, alleges an infringement of his Seventh Amendment rights. He contends that the SEC’s system of an in-house trial led by a commission-designated administrative law judge sidesteps these fundamental rights. Distilling the issue, it appears the SEC acts as the singular force overseeing the roles of judge, jury, and enforcer.
Shift in SEC’s Trial Strategy Stirs Controversy
In a crucial revelation, Musk and Cuban spotlighted an evolution in the SEC’s operational strategy between 2013 and 2014. They identified a strategic transition where the SEC began managing a more substantial chunk of cases internally, steering clear of the federal courts. This change can be traced back to a spate of insider trading cases which the SEC lost before jury trials.
Yet, this alternative mode has not been without complications. In a candid admission in April 2022, the SEC acknowledged that some of its staff members improperly accessed case files, with Jarkesy’s case being one of them.
In a move that might seem paradoxical against this backdrop, the SEC, in July, put forth new directives for public corporations. These rules mandate that significant data breaches must be disclosed within a four-day window. However, it’s pivotal to underscore that the SEC pinpointed its internal lapses leading to unauthorized file access in 2021 but made it public only a year after.
Justice Department Solicitor General, Elizabeth Prelogar, presents a contrasting view. She opines that the 5th Circuit’s ruling siding with Jarkesy lacked merit. Prelogar is confident that the Seventh Amendment remains unviolated by the Congress-sanctioned SEC’s administrative proceedings for civil penalties. She actively entreats the Supreme Court to reconsider its stance.
Musk, currently grappling with his third significant legal hurdle from the SEC, remains undeterred. Both he and Cuban stand resolute, urging the court to back the 5th Circuit’s decision, asserting that the SEC’s current approach could inadvertently imperil investors and the very markets it vows to protect.
