In a sweeping decision, a divided three-judge panel of the U.S. Court of Appeals for the Fifth Circuit (Court) held that the SEC’s administrative law tribunals are unconstitutional because they violate the Seventh Amendment right to a civil jury trial and because Congress improperly delegated to the SEC the ability to choose in which forum it brings enforcement actions. For the time being, the ruling could eliminate the SEC’s ability to use one of its important enforcement tools in cases within the Fifth Circuit’s jurisdiction. The SEC is sure to challenge the ruling, either by requesting en banc review by the Fifth Circuit or appealing directly to the Supreme Court. This article discusses the events and proceedings leading up to the Court’s decision, the majority’s reasoning and the views of the dissenting judge, with additional insights from former SEC attorneys David Kornblau
, partner at Dentons; Scott Mascianica, partner at Holland & Knight; Philip Moustakis
, counsel at Seward & Kissel; and David Slovick
, partner at Barnes & Thornburg. See “BakerHostetler Panel Analyzes SEC Use of Administrative Proceedings and Whistleblower Incentives, and Provides Guidance for Fund Managers Facing an Examination (Part Two of Two)
” (Jan. 19, 2017); and “D.C. Circuit Delivers Significant Victory for the SEC in Upholding the Use of Administrative Law Judges in Enforcement Proceedings
” (Sep. 8, 2016).