Tesla’s CEO, Elon Musk, has teamed up with American investor Mark Cuban to challenge the Securities and Exchange Commission [SEC]. Together, they have submitted an amicus brief to the Supreme Court, aiming to highlight the SEC’s practice of conducting internal trials without juries. Their central argument revolves around the assertion that these administrative proceedings lead to disparate outcomes for individuals facing SEC charges.
Several argue that the SEC possesses an unfair edge when engaging in legal proceedings within its own jurisdiction. Musk’s attorneys argue,
“The SEC itself is the sole fact finder and determines a respondent’s liability and punishment without the involvement of a jury. Such proceedings contravene the protections guaranteed to litigants by the United States.”
Alongside Musk and Cuban, the legal document received support from Phillip Goldstein, Nelson Obus, Manouch Moshayedi, and the Investor Choice Advocates Network.
Understanding the Backdrop of Elon Musk’s Recent Decision
The context of this legal dispute centers around a case identified as SEC v. Jarkesy. In this particular situation, the complainant, George Jarkesy, alleges a violation of his Seventh Amendment rights. He argues that the SEC’s internal adjudication process, conducted without a jury and overseen by an administrative law judge appointed by the commission, contradicts these rights. Essentially, this equates to a situation where a solitary entity assumes the roles of judge, jury, and executor.
The forthcoming court session, set for Nov. 29, relates to the legal matter identified as SEC v. Jarkesy, docket number 22-859. In this session, the Justices will consider the Biden administration’s appeal, contending that a ruling by the 5th U.S. Circuit Court of Appeals favoring Jarkesy could have far-reaching implications throughout the federal government if it remains unaltered. Justice Department Solicitor General Elizabeth Prelogar contends that the 5th Circuit’s decision in favor of Jarkesy was incorrect. She asserts that Congress did not violate the Seventh Amendment by permitting the SEC to commence administrative proceedings for civil penalties. Therefore, she is urging the Supreme Court to reconsider its ruling.
Additionally, it’s important to highlight that the SEC identified its internal control weaknesses. This further led to improper file sharing in 2021 but only disclosed this a year later. The amicus brief further read,
“The SEC recently admitted that its enforcement personnel had improper access to privileged memoranda meant to be accessible to the Commissioners but inaccessible to enforcement staff in administrative proceedings.”
SEC’s Fresh Regulatory Measures for Public Corporations
The SEC decided to implement fresh regulations applicable to publicly traded companies. This means that starting July 26, these directives require corporations to disclose substantial data breaches within a four-day timeframe.
Furthermore, it should be noted that Musk and Cuban are resolute in their positions. They encouraged the justices to endorse the 5th Circuit’s decision. Their legal representatives contend that favoring administrative proceedings over the option of federal court juries runs counter to the SEC’s core objectives. Moreover, such preferences have the potential to detrimentally affect both investors and the financial markets that the SEC is committed to protecting.