A fringe legal argument that the SEC is unconstitutional would have been laughed of court a decade ago, today it will be heard in the Supreme Court. Securities and Exchange Commission v. Jarkesy argues that in enforcing the its own regulations, it went beyond its brief as a regulator. George Jarskey looks like he’s about to rent you a cheap tuxedo, but is, in fact a conservative talk radio host who ran two investment funds totaling about $24mm. He was found guilty of misleading investors and paying himself and a partner huge fees. The SEC slapped him with a fine of several hundred thousand dollars, barred him from certain parts of the industry and generally told him to knock it off. And that should have been that.
Jarkesy doesn’t protest charges… his argument is that, by getting into enforcement of regulations the SEC was acting unconstitutionally. In addition, he argues, Congress itself has run afoul of a non-delegation argument – namely that it shouldn’t give some unelected agency the right to regulate … anything. An electable congress should handle regulation and enforcement. The case moved ahead in the Fifth Circuit Court of Appeals, covering Texas, Louisiana and Mississippi – where this sort of legal foolishness goes on. The Fifth court effectively ruled the SEC, and whatever it’s been doing since 1934, is unconstitutional.
Very few people who’ve ever held a Series 7 license are unqualified fans of the SEC – certainly not one who’s been on 100% commission. Since our adventures in Crypto over the last year, I’ll concede that the SEC serves a purpose, even if they do know how to cock-block a perfectly sensible sale.
The second prong of the argument is that the SEC would be less unconstitutional if the agency was less independent of the president. Not congress, understand, but the person of the president. Which is a terrible idea even if your guy is charge; because it’ll be someone else next time. All of which is an odd tack for the right to take: complaining, with some justification, that the Democrats have weaponized the odd government agency while using an unelected body to ensure that said weaponization is easier to pull off in the future.
Either way, the odds are against Jarkesy, the Supreme Court which has knocked down seven of the last nine cases that have come from the Fifth court. Still, they get points for originality.