Tangle - A Supreme Court case that could reshape the government.

Episode Date: November 28, 2023

Securities and Exchange Commission v. Jarkesy. On Wednesday, the Supreme Court will hear a three-part case on the constitutionality of the Securities and Exchange Commission (SEC). Because of an unusual decision by the U.S. Court of Appeals for the 5th Circuit, the Supreme Court is going to be evaluating three distinct challenges to the SEC at the same time. The situation arose after the 5th Circuit ruled 2-1 in favor of three separate arguments, invalidating each aspect of the SEC's operations that were being challenged. If the ruling were to go unaddressed, Congress would have to substantially change portions of the law based on the 5th Circuit's ruling, hence the Supreme Court's decision to take them all up together.You can read today's podcast ⁠⁠here⁠⁠, our “Under the Radar” story here, and today’s “Have a nice day” story here. You can also check out our latest video, a previously paywalled piece about how Israel has no good options here and the controversial debate we posted on YouTube here.Today’s clickables: Black Friday sale through this week (0:45), Quick hits (1:06), Today’s story (2:12), Right’s take (9:00), Left’s take (12:55), Isaac’s take (17:01), Listener question (21:17), Under the Radar (21:41), Numbers (22:33), Have a nice day (23:39)You can subscribe to Tangle by clicking here or drop something in our tip jar by clicking here. Take the poll. Which, if any, of the challenges in SEC v Jarkesy do you find convincing? Let us know!Our podcast is written by Isaac Saul and edited and engineered by Jon Lall. Music for the podcast was produced by Diet 75. Our newsletter is edited by Managing Editor Ari Weitzman, Will Kaback, Bailey Saul, Sean Brady, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is Chinatown is streaming November 19th, only on Disney+. yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca.

From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle podcast, the place we get views from across the political spectrum, some independent thinking, and a little bit of my take. I'm your host, Isaac Saul, and on today's episode, we're going to be talking about SEC versus Jarcassi. This is a pretty important Supreme Court case with oral arguments happening tomorrow. Today is Tuesday, November 28th, and the oral arguments are coming down Wednesday, November 29th. We're covering it today because there's been quite a bit of discussion about it already, and I think it's worth diving into. Before we jump in, though, as always, we're going to kick things off with our quick hits. First up, Israel and Hamas extended their ceasefire deal an additional two days as Qatar,

Egypt, and the United States continued to broker negotiations. 20 more hostages will be released in exchange for 60 more Palestinian prisoners. Number two, the United States and 18 other nations released guidelines for artificial intelligence development in hopes of keeping systems safe from rogue actors. Number three, U.S. home sales fell 5.6% month over month in October, but they remain up 17.7% year over year. Number four, the suspect who shot and injured three Palestinian American college students pleaded not guilty to attempted murder charges, one of the three students has now been released from the hospital.

And number five, Amazon surpassed UPS and FedEx as the largest U.S. delivery business in 2022. On Wednesday, the Supreme Court will hear a three-part case on the constitutionality of the Securities and Exchange Commission, also known as the SEC. Because of an unusual two-to-one decision by the U.S. Court of Appeals for the Fifth Circuit, the Supreme Court is going to be evaluating three distinct challenges to the SEC at the same time. The situation arose after the Fifth Circuit accepted three arguments together and invalidated each aspect of the SEC's operations that were being challenged. If the ruling were to go unaddressed, Congress would have to substantially change portions of the law based on the Fifth Circuit's ruling, hence the Supreme Court's decision to take them all up together. Court watchers have said a complete affirmation of the Fifth Circuit's decision would be one of the most important administrative law decisions of the last half-century, so the court's ruling will be very

impactful to the government. However, Jarkesi is a very complicated case. Today, we're going to do our best to simplify what's going on, break down what the arguments are, and provide commentary from the right and the left. Our explanations have been heavily sourced from SCOTUSblogandlaw.com to great and free sources for understanding complex Supreme Court cases. So first, let's back up just a little bit. The Securities and Exchange Commissioner, SEC, was created after the infamous Wall Street crash of 1929 to protect investors, enforce the law, and prevent market manipulation. This case involves a hedge fund founder and investment advisor named George Jarkesi. In 2013, the SEC found that Jarkesi and his firm committed

securities fraud, misrepresenting how their funds were run, and that Jarkese paid himself and his partner fraudulently high fees. The SEC then ordered him to pay $300,000 in fines and $700,000 of repayment. Jarkese took the SEC to court, arguing that its process for fining him was unconstitutional and that Congress does not have the authority to empower the SEC to charge him in an administrative court. Jarcassi, a conservative activist and radio talk show host, rallied support for his case and garnered national attention. Now, after the Fifth Circuit affirmed all three of Jarcassi's arguments, the case is coming before the Supreme Court with three main constitutional questions at hand.

First is whether Congress can give the SEC the power to decide whether a case should be pursued within the agency or in a federal court. Currently, the federal government employs about 2,000 administrative law judges who hear cases brought by certain federal agencies in courts that are called Article I tribunals. Article I tribunals that are called Article I tribunals. Article I tribunals are distinct from Article III tribunals, which are federal district or circuit courts that involve juries. However, administrative law judges sitting on Article I tribunals can have their rulings appealed to a federal district or circuit court, as was done in this case. The government argues that the Supreme Court has repeatedly recognized congressional

power to delegate decisions to federal agencies about where the enforcement of civil and criminal proceedings should take place. Jarquesi argues that the power to assign a claim to an administrative judge is, quote, quintessentially legislative in nature, end quote, and therefore Congress cannot determine that a case like his should be heard either by an administrative judge or an Article III tribunal. Rather, it can only create two separate actions. He is arguing that if there is no restraint on the agency's decision of where to try the case, the agency effectively takes legislative power that is not constitutionally granted. The argument that Congress cannot delegate its power to another entity is known as the non-delegation doctrine. Second is whether Congress is authorized to adjudicate administrative proceedings that

impose monetary penalties. Broadly speaking, the Seventh Amendment states that defendants have a right to trial by jury in common law suits. Common law is a body of law deriving from court decisions and precedents developed over many centuries in English courts and adopted by colonial Americans. However, it is distinct from statutory law or laws created by acts of Congress or a state legislature like the Congressional Act that created the SEC. However, the Seventh Amendment has several exceptions. The one pertinent to this case is the Public Rights Doctrine, which allows administrative agencies like the SEC, through Article I tribunals, to impose monetary penalties

without a jury. The government is arguing that Congress can create new obligations by statute, and because the statutes were unknown at the time common law precedent was set, they fall under the Public Rights Doctrine, meaning an administrative judge can rule on them without a jury. Meanwhile, Jarcassese is broadly arguing for an eradication of the public rights doctrine, making the case that a catalyst for the American Revolution was the British Crown's practice of imposing statutory penalties without a jury. His main point is that the Supreme Court has recently rejected similar cases involving things like bankruptcy code, which implies that the court should interpret Congress's power to assign new statutory causes of action to administrative

tribunals as more limited. Third is whether the Constitution allows Congress to give the SEC's administrative judges protection from removal, which many court watchers consider to be Jarcassi's strongest line of argument. The challenge rests on the idea that the President of the United States should have command and control over the entire executive branch, meaning that he can fire every single employee, or at least have the power to fire the boss of those employees. This is called the theory of the unitary executive. In 2010, the Supreme Court's decision in Free Enterprise Fund v. Public Company

held that the president's executive power over a government board was limited when the board's members were protected by multiple levels of tenure. Chief Justice John Roberts ruled that a president cannot fulfill his constitutional duty if he is unable to oversee officers assigned to execute their duties. Jarcassi is arguing that the Merit Systems Protection Board, a government panel that reviews the dismissal of administrative law judges, violates the standards set in free enterprise fund v. public company by creating multiple protections for those judges. The government is arguing that while the free enterprise fund ruling applied to policymakers, the question of whether it should apply to adjudicators was largely left open in Roberts'

2010 ruling. Now, the government is seeking an answer in its favor in this case, arguing that tenure protection for judges is necessary in an administrative state to provide any semblance of a fair process. You can read more about these arguments with links in today's episode description. Today, we're going to break down some arguments from the left and the right about this case, and then my take. We'll be right back after this quick commercial break. First up, we're going to start with what the right is saying. The right supports Jarkese's argument that his constitutional right to a trial by jury was violated by the SEC's in-house enforcement proceedings. Some frame the case as a significant opportunity to curtail the

power of government agencies. Others go further, saying a ruling in favor of Jarkese would strike a blow to the administrative state. The Wall Street Journal editorial board said the case could vindicate a legal protection against the administrative state that the founders fought for. At stake in SEC v. Jarcassie is a bedrock constitutional principle that colonists fought to defend in the American Revolution, the right to a trial by jury, the board said. The SEC tries to muddy the public-private distinction by arguing that public rights are at stake whenever the government sues on behalf of the public to enforce laws. But as Mr. Jarkese points out, the SEC is seeking to deprive him of a core right for a common law offense that he allegedly

committed against other private citizens. The historical record supports his argument. Today's administrative tribunals resemble those that the British government used to punish colonists and religious dissidents before the revolution. Progressives say a ruling for Mr. Jarkese would gut the administrative state, which is what they always say, but the SEC and other federal agencies could continue to litigate cases in-house that involve truly public rights, such as veterans' benefits and asylum claims. They would have to go to federal court to impose civil penalties for common law offenses. claims, they would have to go to federal court to impose civil penalties for common law offenses.

In the Washington Post, George F. Will argued that the case will have momentous implications for our government power. If the court rules in favor of Jarcassi, the constitutional right of access to courts will be vindicated, constitutionally dubious allegations of congressional power will be curtailed, and administrative state agencies will have to respect the separation of powers. Let us hope for what progressives fear, the end of government as they have transformed it, Will said. Many targets of SEC enforcement quickly settle cases that the SEC assigns not to a regular court with a neutral judge, but to its in-house tribunals. This practice is analogous to prosecutors overcharging defendants to coerce them into plea bargains, vitiating their right to jury trials. By resisting such abuses, Jarcassi, like the Institute for Justice, is defending the nation's constitutional structure against unaccountable agencies operating as a fourth branch of the government. Jarcassi is asking

the Supreme Court to demonstrate, for the benefit of everyone but administrative state bureaucrats, something that Alexander Hamilton said in Federalist 78, would be required to defend the Constitution against depredations by the elected branches, an uncommon portion of fortitude. In her SCOTUS Ladies blog, Anastasia Bowden noted that the case is one of the few big administrative law cases the court has taken up this term. The SEC's in-house proceedings lack vital due process protections. No jury relax evidentiary rules, guilt is determined by preponderance of the evidence, and are heard before ALJ's administrative law judges, who are impermissibly enmeshed with the enforcement staff. Worse yet, all appeals are heard before the commissioners, the same people who authorized the enforcement actions in the first place and have therefore prejudged the evidence,

Bowden wrote. The issues at the core of this case have been targets of those seeking to push back against the growth of the behemoth administrative state for some time. Congress is all too eager to delegate away its power to administrative agencies so it can avoid any political blowback. Critics of this regime argue that in many cases, Congress is impermissibly delegating its legislative power to the executive branch in violation of Article I and the Constitution's separation of powers. This

non-delegation doctrine has really only enjoyed one good year at the court, but some justices, namely Justice Gorsuch, have recently signaled their willingness to reinvigorate it. All right, that is it for the rightist saying, which brings us to what the left is saying. The left is deeply concerned about the prospect of the court ruling in favor of Jarkesi. Some say this case is really about helping Trump exert complete control over the government if he wins re-election. Others say that both congressional and federal agency power would be imperiled

if Jarkese prevails. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada,

which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. In Vox, Ian Millhiser said the court could help make Trump's authoritarian dreams reality. We're talking about a federal agency that has existed since the Roosevelt administration

and whose governing statutes haven't changed in any relevant way for more than a dozen years. Nevertheless, an especially right-wing panel of the United States Court of Appeals for the Fifth Circuit purported to found three entirely different constitutional flaws that somehow no one else has ever noticed before, Millizer wrote. None of the three rationales the Fifth Circuit offered for neutering the SEC are especially persuasive, but one of them is grounded in a pet project of the conservative Federalist Society known as the Unitary Executive, a project for which the current court's GOP-appointed majority has shown a great deal of sympathy. There is a risk, in other words, that at least some of the Fifth Circuit's effort to light this decades-old agency on fire could succeed, with implications that stretch far beyond securities fraud.

A sweeping decision affirming the Fifth Circuit could potentially enable former President Donald Trump to stack the Federal Civil Service with MAGA loyalists, should he become president again, Millizer said. If the court comes for ALJs in the Jarcassie case, however, that would be far more than a symbolic step toward the unitary executive theory. A decision striking down for ALJs in the Jarcassie case, however, that would be far more than a symbolic step toward the unitary executive theory. A decision striking down these ALJs would destroy much of the government's ability to adjudicate cases. In The Atlantic, Noah Rosenblum suggested the outcome of the case could destroy the government. The right-wing legal movement's target is the administrative state. legal movement's target is the administrative state. The agencies that institutions set standards for safety in the workplace, limit environmental hazards and damage, and impose rules on financial

markets to ensure their stability and basic fairness, among many other important things. The case, Securities and Exchange Commission v. Jarcassi, threatens all of that. Terrifyingly, this gambit might succeed, Rosenblum said. Jarcassi's most far-reaching constitutional argument is built on the non-delegation doctrine, which holds that there may be some limits on the kinds of power that Congress can give to agencies. This is wild stuff. Not long ago, a lawyer would have been laughed out of court for making such non-delegation claims. Today, they'd have a good chance of destroying the federal government's administrative capacity,

taking down its ability to protect Americans' health and safety while unleashing fraud in the financial markets, Rosenblum wrote. Still, Tarkessi's challenge might succeed. Arguments like his have been rejected by federal courts many times already, but the federal judiciary has drastically changed in recent years and the Supreme Court with it, opening the possibility of a new, friendly reception to these absurd legal claims. In the Center for American Progress, Devin Ombre has argued the case represents a threat to congressional and agency authority. If the Supreme Court upholds this extreme ruling on ALJs, it could pose an existential threat to federal agencies that protect Americans and make determinations on the government benefits they are owed. For example, these judges play important roles in getting Americans the social

security benefits they are owed, safeguarding their right to join a union or bargain over wages, keeping them safe and unharmed at work, and regulating the safety and cost of U.S. energy sources, Ombre said. And if the court upholds this ruling on the non-delegation doctrine, it will be the first time in nearly a century, and only the third time ever, that this long-discredited legal theory has been used to strike down a federal law. It would show that the court is seeking to limit Congress's powers and put its policy preferences above those of elected officials, Ombres added. Additionally, if the Supreme Court resurrects the non-delegation doctrine, it would create a previously non-existent tool to aggregate power to the judiciary and curtail Congress's ability to legislate.

Alright, that is it for what the left and the right are saying, which brings us to my take. So one thing nobody is really touching on is the fact that Jarquesi appears to be very guilty of fraud and screwing over investors. And whatever happens in this case, I think we should all be unified in a desire to make it easy to punish people like him. desire to make it easy to punish people like him. That simple fact is lost in the scholarly legal arguments here, but I don't want to lose sight of the reality that this guy is a crook. He responded to getting caught with an audacious challenge to the SEC's existence, and he has now managed to find himself in front of the Supreme Court. With that said, I'm not shy about saying I don't know when I don't know, and today, well, I don't know. I'm genuinely unsure about how the court is going to parse these arguments, and especially unsure about how it will land on the unitary executive question. This kind of law is so detailed and

complicated that I can't offer any of my opinions with total confidence. Even the most seasoned scholars of this kind of law seem to be divided, hence Tarkessi's appearance before the Supreme Court. That being said, I do view each of these arguments with different degrees of skepticism. When this case was at the conservative Fifth Circuit Court of Appeals, Tarkessi's arguments were accepted in a two-to-one decision. The dissenting judge was a staunch conservative, twice appointed by Republicans, and his dissent was strong enough to give me pause about Tarkarkese's odds in front of the Supreme Court. I find the general consensus that I've read persuasive, which is that Jarkese's strongest arguments come from the theory of the unitary executive in challenge number three. The other

two challenges just fall flat. The idea that Congress cannot delegate enforcement power to the SEC just doesn't pass a basic sniff test to me, which is Tarkessi's first challenge. There's a reason non-delegation doctrine hasn't been used to strike down any laws in nearly a hundred years, and I think the court is about to spell out why. As for the second challenge, there seems to be a long history of cases where the Supreme Court has made it clear when and where juries are required and when and where they aren't. In principle, I agree with Anastasia Bowdoin about the dubious nature of administrative courts and the need to reform them. I also agree with her description of a Congress that is delegating far too much of its power and duties away to a behemoth

administrative state. But I also think the precedent and case law works against Darkesi. But I also think the precedent and case law works against Darkesi. Atlas Roofing v. OSHA, a case decided in 1977, provides a significant precedent that suits brought under federal statutes can be heard by administrative law judges without a jury. Furthermore, there is over 200 years of history of common law being separated from statutory law, and I'd be pretty shocked if the court broadened the scope of what cases require juries to include something like the securities fraud case in which Tarkese was tried. That brings us to the unitary executive question. The reason this argument is striking is its simplicity. A president should

have broad control over the executive branch. If a president can't do something as simple as fire an employee in the executive branch, it feels as if they are being deprived of a fundamental power granted to them by the Constitution. That, paired with the precedent set in the 2010 Free Enterprise Fund v. Public Company Accounting Oversight Board ruling, make me think Tarkesi might get some traction here. Of course, as Ian Millhiser pointed out under what the left is saying, the logical extreme of the theory of the unitary executive is that a president could get elected and lay off the entire federal workforce if they wanted to. That doesn't seem like a safe or reasonable way for the government to function, which is why so many good arguments against the

theory have been crafted over time. But I suspect the theory will find some friendly ears on this court. The Roberts court has tended toward incrementalism, and I doubt it will take any of these three arguments to their logical ends. Given the makeup of this court, I think a much more likely outcome is that Darkesi scores a narrow but significant victory that limits agency and administrative power, but does the least amount of disruption to the federal government. How will the court reach that conclusion? I'll say it again, I really don't know. that conclusion? I'll say it again. I really don't know. We'll be right back after this quick break. All right, that is it for my take. We are skipping today's reader question because this main topic took some explaining and took some

extra space on the podcast. But if you have a question you want answered in the newsletter or podcast, you can write to me, Isaac, I-S-A-A-C, at readtangle.com. All right, next up is our under the radar section. Amid increased partisanship, gerrymandering, and infighting, there has been a slew of congressional retirements. Close to 40 members of Congress have already said they're planning to retire ahead of the 2024 elections, already an unusually high number, and according to many reporters, just the beginning. While most of the retirements are in safely Republican or Democrat seats, a handful will open the door for competitive races. Representative Earl Blumenauer, the Democrat from Oregon, cited dysfunction as his reason for

leaving. I deeply respect some of my colleagues on both sides of the aisle, but it's harder and harder to work with them, he told CBS News. The unending chaos in the House really takes up most of the oxygen. CBS News has the story, and the New York Times has the list of retirees. There's links to both in today's episode description. All right, next up is our numbers section. The number of enforcement actions filed by the SEC in fiscal year 2023 was 784. That's a 3% increase over fiscal year 2022. The number of follow-on administrative proceedings filed by the SEC in fiscal year 2023 seeking to bar or suspend individuals from certain functions in the securities market was 162. The number of orders obtained by the SEC in fiscal year 2023

to bar individuals from serving as officers and directors of public companies was 133, and the amount of financial remedies obtained by the SEC in fiscal year 2023 was $5 billion. That's the second highest for a year in the agency's history. The amount returned to harm investors in fiscal year 2023 was $930 million, and the amount of whistleblower awards issued by the SEC in fiscal year 2023 was 600 million, the most ever awarded in one year. And finally, the number of whistleblower tips received by the SEC in fiscal year 2023 was 18,000. All right.

And last but not least, our have a nice day story. Arav Anil is a 17-year-old student in India with an interest in robotics who has represented his country in over 20 robotics competitions. But perhaps his most impressive engineering feat came in his spare time. Arav's 70-year-old uncle has Parkinson's and can't eat with a spoon without splattering, which gave Arav an idea. With motors, sensors, microelectronics, and a 3D printer, he designed a special spoon that can correct for hand tremors to allow his uncle to eat without splattering. Now Arav is testing his design at the RV College of Physiotherapy in Bengaluru, southern India,

and trying to improve it so more people can use it. I've been fine-tuning the design based on the college's feedback that it needs to be waterproof so that it can be washed without damaging all the electronics inside, that it must be detachable so it can be cleaned and replaced by a fork, and the spoon needs to be deeper to hold more food, Aram said. Good News Network has the story on his invention, and there's a link to it in today's episode description. All right, everybody, that is it for today's podcast. As always, if you want to support our work, you can go to readtangle.com forward slash membership. And we'll be right back here

same time tomorrow. Have a good one. Peace. Our podcast is written by me, Isaac Saul, and edited and engineered by John Wall. The script is edited by our managing editor, Ari Weitzman, Will Kabak, Bailey Saul, and Sean Brady. The logo for our podcast was designed by Magdalena Bokova, who is also our social media manager. Music for the podcast was produced by Diet75. And if you're looking for more from Tangle, please go to readtangle.com and check out our website. Based on Charles Yu's award-winning book,

Interior Chinatown follows the story of Willis Wu, Thanks for watching. and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for

free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at FluCellVax.ca.