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Decision in SEC v. Jarkesy decried as a "victory for the wealthy and powerful" delivered by a right-wing majority that once again put "corporations, Wall Street, and billionaire benefactors over everyday Americans."
The U.S. Supreme Court on Thursday ruled along ideological lines that the Securities and Exchange Commission cannot use in-house legal proceedings to civilly penalize fraudsters, a decision that could strike a devastating blow to federal agencies' ability to fight corporate crime.
In the 6-3 decision, the high court's conservative supermajority deemed the SEC's in-house proceedings unconstitutional, siding with the U.S. Chamber of Commerce and other big business-aligned organizations that weighed in on the side of the plaintiff—conservative radio host and hedge fund manager George Jarkesy, who was accused by the SEC of defrauding investors and ordered to pay a $300,000 civil penalty.
Jarkesy argued the SEC proceedings violated his Seventh Amendment right to a jury trial. But as Vox's Ian Millhiser observed, "the Constitution treats civil trials very differently from criminal proceedings."
"While the Sixth Amendment provides that 'in all criminal prosecutions' the defendant is entitled to a jury trial," Millhiser wrote, "the Seventh Amendment provides a more limited jury trial right, requiring them 'in suits at common law.'"
Millhiser argued that with its ruling in SEC v. Jarkesy, the high court effectively "lit a match and tossed it into dozens of federal agencies."
The Supreme Court's three liberal judges dissented from Thursday's decision, with Justice Sonia Sotomayor denouncing the ruling as "a power grab" with potentially "momentous consequences."
"Today's ruling is part of a disconcerting trend: When it comes to the separation of powers, this court tells the American public and its coordinate branches that it knows best," Sotomayor wrote, warning that the decision "means that the constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress."
Congress would have to give a bunch of federal agencies VASTLY more money and personnel to handle all the jury trials they would need to conduct to patch the hole that SCOTUS just blew in their enforcement powers. It won't happen. This case will just let lawbreakers off the hook.
— Mark Joseph Stern (@mjs_DC) June 27, 2024
Consumer advocates and watchdog organizations warned the high court's decision in SEC v. Jarkesy could have implications that extend well beyond the Securities and Exchange Commission, given that other key agencies—including the Federal Trade Commission, the Federal Mine Safety and Health Review Commission, and the Environmental Protection Agency—use internal legal proceedings overseen by an administrative law judge.
The Associated Pressnoted Thursday that the SEC "had already reduced the number of cases it brings in administrative proceedings pending the Supreme Court's resolution of the case."
"Today's decision is another step in the long-term corporate project of neutering federal agencies' ability to protect the public from fraudsters, rip-offs, dangerous products, carbon polluters, and more," Robert Weissman, president of Public Citizen, said in a statement. "The decision will have near-term consequences for the financial system, as it hinders the SEC's ability to seek critical penalties."
As a result of Thursday's ruling, said Weissman, some federal agencies "will need new authority from Congress, which is not doing much legislating, in order to be able to enforce the law."
"The decision extols the Seventh Amendment, but shows little respect for the separation of powers that is at the heart of our constitutional system," Weissman added. "There's also more than a little irony in this court touting the right to access the court system, when it has broadly allowed companies to require consumers to use arbitration rather than protecting their right to access the courts."
"In gutting the federal government's ability to enforce laws enacted by Congress, this ruling gives special interests even more power to set the rules for the rest of us."
As Politicoreported last month, an "alliance of tech billionaires, conservative legal activists, and the business lobby" joined the fight to strip the SEC of the key enforcement tool.
The outlet noted that "since Jarkesy was filed, companies including Meta, SpaceX, and Amazon have escalated it into a broader fight against federal power by suing other agencies over their own courts—a way of fighting unfavorable judgments by attacking the system that delivered it."
The Revolving Door Project noted in an analysis released Thursday that at least 13 organizations with "ties to court-whisperers and judicial gift-givers like Leonard Leo, Charles Koch, Paul Singer, Harlan Crow, and wealthy elites in the Horatio Alger Association in which Clarence Thomas is a key member" submitted amicus briefs supporting Jarkesy's fight against the SEC.
"Some of the organizations that supported the weakening of the SEC have direct ties to the powerful friends and benefactors of the court," the group said. "The very same people who are flying Clarence Thomas and Samuel Alito to vacation destinations on private jets are closely tied to organizations that are urging the court through amicus briefs to rule in a manner favorable to corporate wrongdoers."
Caroline Ciccone, president of the watchdog group Accountable.US, said in a statement Thursday that the Supreme Court's decision "is a victory for the wealthy and powerful, delivered by a Supreme Court conservative majority all too used to putting corporations, Wall Street, and billionaire benefactors over everyday Americans."
"In gutting the federal government's ability to enforce laws enacted by Congress, this ruling gives special interests even more power to set the rules for the rest of us," said Ciccone. "Let's be clear: This is a power grab that will ultimately harm ordinary people by making it harder for federal agencies to hold corporations accountable for misdeeds."
"For real and lasting change to occur," said Public Citizen's Robert Weissman, "Boeing must now be held criminally accountable."
Embroiled once again in an alarming quality control and safety scandal, the aircraft manufacturing giant Boeing on Monday announced a management shake-up that will see CEO Dave Calhoun step down at the end of the year, the head of the company's commercial airplanes division resign immediately, and the chairman of the board depart after Boeing's annual meeting in May.
Calhoun, who said he decided on his own to resign, took charge at Boeing in the midst of the company's previous high-profile crisis—the grounding of the 737 MAX jet following a pair of crashes in 2018 and 2019 that killed more than 340 people.
Robert Weissman, president of the consumer advocacy group Public Citizen, said in response to the news of Calhoun's coming departure that "if Boeing had been held criminally accountable after the... 737 MAX disasters, the more recent quality debacles quite likely could have been averted."
Earlier this year, a door plug of a Boeing 737 MAX 9 flew off the aircraft as it ascended, causing minor injuries and forcing the pilots to conduct an emergency landing. More than 170 MAX 9s were subsequently grounded to undergo inspections.
The incident prompted federal regulators, airlines, and journalists to—once again—closely scrutinize Boeing's manufacturing process, cost-cutting efforts, lobbying against safety regulations, and executive and shareholder payouts.
The Leverreported days after the January 5 incident that "less than a month before a catastrophic aircraft failure prompted the grounding of more than 150 of Boeing's commercial aircraft, documents were filed in federal court alleging that former employees at the company's subcontractor repeatedly warned corporate officials about safety problems and were told to falsify records."
The outlet also found that "operators of Boeing's troubled 737 MAX planes have filed more than 1,800 service difficulty reports—more than one per day—warning government regulators about safety problems with the aircraft since the fleet was allowed to resume flying after two fatal crashes."
Alaska Airlines, the operator of the January 5 flight, said in late January that it found loose bolts on "many" of Boeing's 737 MAX 9s.
"The FAA identified noncompliance issues in Boeing's manufacturing process control, parts handling and storage, and product control."
In an update published on March 4, the Federal Aviation Administration (FAA) said its six-week audit of Boeing and Spirit AeroSystems—a major Boeing contractor—uncovered "multiple instances where the companies allegedly failed to comply with manufacturing quality control requirements."
"The FAA identified noncompliance issues in Boeing's manufacturing process control, parts handling and storage, and product control," the agency said. "To hold Boeing accountable for its production quality issues, the FAA has halted production expansion of the Boeing 737 MAX, is exploring the use of a third party to conduct independent reviews of quality systems, and will continue its increased onsite presence at Boeing's facility in Renton, Washington, and Spirit AeroSystems' facility in Wichita, Kansas."
Earlier this month, days after the FAA update was published, a Boeing whistleblower who raised concerns about the company's quality control practices was found dead of what local officials said appeared to be a self-inflicted gunshot wound.
Weissman of Public Citizen said Monday that "of course CEO Dave Calhoun should be dismissed" over the company's latest safety crisis.
"But for real and lasting change to occur," he argued, "Boeing must now be held criminally accountable both for the recent safety failures and the... crashes that took 346 lives."
In 2021, Boeing entered into a deferred prosecution agreement with the U.S. Justice Department to avoid a criminal charge over an alleged conspiracy to defraud the FAA in the wake of the 2018 and 2019 crashes.
Public Citizen noted in a report published Monday that "such agreements now help the most powerful businesses in the world dodge the legal consequences of their criminal misconduct."
"Instead of facing prosecution—which would mean plea agreements or trial in a public court of law—leniency deals are negotiated quietly between prosecutors and corporate lawyers with little or no judicial oversight," the group said. "Proponents say the agreements are a streamlined way to effectively deter corporate crime. Public Citizen research, however, shows about 15% of the agreements historically involve repeat offenders, casting doubt on their deterrent effect."
"If you steal a penny in America, you are a criminal," said the watchdog group Public Citizen. "If you steal millions, you are a multinational corporation."
An analysis released Monday shows that the Biden Justice Department prosecuted just 99 corporate offenders last year, despite pledging to crack down on white-collar crime following years of lax enforcement during former President Donald Trump's White House term.
Corporate prosecutions have declined sharply since 2000, a trend that President Joe Biden has failed to reverse, the consumer advocacy group Public Citizen observed in a new report.
During Biden's first year in office, corporate prosecutions fell to 90, just below the 94 that the Trump administration recorded in 2020 and far below the 304 prosecutions in 2000.
The slight rise to 99 prosecutions in 2022—the fifth-lowest on record—matches the second-lowest number of corporate prosecutions during Trump's four years in the White House.
"The Biden Justice Department's light-touch approach to enforcement encourages corporate scofflaws to push the limits of what's legally allowed to maximize their profits—risking our health and safety, our environment, our finances, and our communities," Rick Claypool, a research director for Public Citizen and author of the new report, said in a statement.
"The Justice Department is still bending over backwards to protect corporate offenders from the consequences of their lawbreaking, and it's creating ideal conditions for the next corporate catastrophe," Claypool warned. "The worst corporate-caused crises of the 21st Century—the 2008 financial crisis and the opioid epidemic—are stories about enforcement agencies failing to fight systemic criminal misconduct before it was too late."
"A society that punishes the crimes of the poor while permitting the crimes of the powerful is not a just society."
The Biden administration's rhetoric on corporate crime and the policies it has implemented in a purported attempt to deter wrongdoing and hold bad actors to account have not translated into much, if any, measurable progress.
Public Citizen found that corporate leniency agreements—deals that companies reach with the Justice Department to avoid or defer prosecution—fell to just 11 last year, the lowest level since 2004.
"But whether the shift can be seen as a sign of strengthened corporate enforcement is a separate question," the group said. "If the DOJ's interest in prosecuting corporate crime was truly waxing, one would expect to see increasing prosecutions accompany the decreasing leniency agreements."
"Instead," Public Citizen added, "the near-record low number of corporate prosecutions combined with plunging corporate leniency agreements means the federal government concluded 110 criminal cases against corporations in fiscal year 2022—fewer than any previous year since 1994, when it concluded 106."
The new report points to several examples of companies that escaped prosecution through leniency agreements last year and in 2021, including Credit Suisse, Uber, and Stericycle.
"A society that punishes the crimes of the poor while permitting the crimes of the powerful is not a just society," Public Citizen's report says. "The principle that no one should be above the law includes corporations."
The report was published weeks after the Biden Justice Department faced backlash for announcing that it would not pursue charges against companies that voluntarily disclose wrongdoing committed by businesses they are acquiring.
Sen. Elizabeth Warren (D-Mass.) wrote in a letter to Attorney General Merrick Garland and Deputy Attorney General Lisa Monaco earlier this month that the policy "would incentivize corporations to engage in illegal activity of all kinds—knowing that they could simply wipe the slate clean during a merger."
More than a dozen progressive advocacy groups, including Public Citizen, echoed that warning last week and urged the Justice Department to reverse the so-called "safe harbor" policy.