Elon Musk, the CEO of Tesla, and Mark Cuban, the owner of the Dallas Mavericks, have joined forces to write an amicus brief in support of the defendants in a Supreme Court lawsuit against the U.S. Securities and Exchange Commission (SEC). The lawyers for the billionaires emphasized that the SEC should not be allowed to arbitrarily decide whether parties are given their constitutional right to jury trials or are required to proceed in enforcement proceedings with administrative law judges immune from proper and meaningful oversight.
Elon Musk and Mark Cuban Support SEC Case
Elon Musk, the CEO of Tesla, Mark Cuban, the owner of the Dallas Mavericks, and a number of other individuals joined forces on Wednesday to submit an amicus brief to the Supreme Court in favor of a case challenging the legality of the SEC's administrative proceedings. Phillip Goldstein, Nelson Obus, Manouch Moshayedi, and the Investor Choice Advocates Network (ICAN) joined the amicus brief of the billionaires.
The SEC v. Jarkesy case will be heard by the Supreme Court on November 29. The constitutionality of the SEC's employment of internal judges is contested in the case. George Jarkesy, the plaintiff, claimed that the SEC's internal, jury-free adjudication process by an administrative law judge chosen by the commission is unconstitutional because it infringes on his right to a jury trial under the Seventh Amendment.
The SEC started handling more cases internally between 2013 and 2014, according to the amicus brief, as a result of "a series of jury trial losses in insider trading cases." According to the brief, amici are interested in how this case turns out because they think:
It's crucial that the SEC not be allowed to arbitrarily decide whether to allow parties to exercise their constitutional right to jury trials or require enforcement proceedings to move forward with administrative law judges (ALJs) exempt from legitimate and effective oversight.
According to the filing, "respondents in SEC administrative proceedings are not afforded the benefits and protections of the federal rules of evidence and procedure or the right to a jury trial, unlike defendants in federal court proceedings."
In May 2022, the Fifth Circuit Court of Appeals determined that Jarkesy's right to a jury trial under the Seventh Amendment had been violated. Following the SEC's admission that its employees had unlawfully accessed information in numerous instances, including Jarkesy's case, in April 2022, this ruling was issued shortly after.
According to Elizabeth Prelogar, the Solicitor General for the Justice Department, the appeals court "erred in holding that Congress violated the Seventh Amendment by authorizing the SEC to bring administrative proceedings seeking civil penalties" and that the Supreme Court should take a different position. The Biden administration is requesting that the Supreme Court reverse the decision because, if upheld, it may have "massive practical consequences" for the entire federal government.
Musk and Cuban's legal representatives claimed that the SEC's "administrative proceedings — as they are currently structured — results in unequal results for SEC defendants." They also said
It is against the SEC's mission and detrimental to the investors and markets it is tasked with protecting because the SEC insists on administrative proceedings while federal court juries are easily accessible.
The lawyers for Musk and Cuban stated, "The SEC demands full transparency and disclosure for the benefit of participants in securities markets under the statutes and regulations the SEC is responsible for implementing (as well as through its own actions, public statements, and admissions). Nevertheless, they pointed out that the securities regulator "uses administrative proceedings, without the rigor and deliberation resulting from a jury trial, to litigate against defendants when the SEC could more effectively and openly litigate in federal court."
In addition, they claimed that "when the SEC elects to use an administrative proceeding, whether before an ALJ or the commissioners of the SEC, the SEC itself is the sole fact finder and determines a respondent's liability and punishment without involvement of a jury."
Last but not least, Musk, Cuban, and other amici "urge the court to affirm the Fifth Circuit's decision but reverse its order of remand to the Commission," according to the brief. Their attorneys wrote:
In order to ensure that the SEC is obligated to properly litigate in all circuits, not just the Fifth Circuit, amici... ask this court to support the Fifth Circuit's rationale.
A "comprehensive overhaul" of the SEC, according to Musk, is quite likely to happen. This month, the regulator sued Tesla's CEO to compel him to provide a testimony about the purchase of Twitter, now known as X, a social media platform.
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