Administrative State’s Reach Under Review by Top Court

Ron Knecht

America’s progressive movement began with the Pendleton Act of 1883, which created federal civil service. It continues to the present, addressing many areas, including antitrust, women’s rights, eugenics, income/wealth equality, environmental protection, labor laws and others.

Notable progressives have included Woodrow Wilson, his mentor Richard Ely, Margaret Sanger, William Jennings Bryan, Herbert Croly (New Republic founder), both Theodore and Franklin Roosevelt, Barack Obama and (lately) Joe Biden.

Some progressive causes have stood the test of time and been found sound and compatible with our Constitution; others, are found contrary to the public interest and the Constitution and discarded.

Many issues, including environmental overreach plus diversity, equity and inclusion, are still in play, especially since the Supreme Court majority has moved from ad hoc results-oriented jurisprudence advocated by progressives back to constitutional originalism and textualism.

A salient current issue is the legitimacy and reach of modern administrative state structures and methods, being challenged on many fronts, particularly in the case of Securities and Exchange Commission v. Jarkesy, now before the Supreme Court.

If the Supreme Court upholds the May 2022 decision of the Fifth Circuit Court of Appeals in favor of Jarkesy, the remit and practices of the U.S. Securities and Exchange Commission (SEC) in regulating finance and securities transactions almost as a law unto itself would be completely upended.

Moreover, the issues at stake – namely, the widespread failure of federal administrative agencies to abide by the strict requirements of the Constitution and be democratically accountable – would reform federal administrative practice in many areas.

In 1934 during the Great Depression, Congress and President Franklin Roosevelt created the SEC. They granted it the power, among other things, to regulate investment companies via either lawsuits in federal courts or agency hearings conducted by SEC administrative law judges (ALJs) – at SEC discretion.

Extending SEC power following the Great Recession, in 2010, Congress added and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Typically, in enforcement actions involving brokers and investment advisors required to be registered with the SEC, it assigns ALJs to hold enforcement hearings, with SEC prosecutorial staff opposing the defendant, and ALJs drafting decisions for the Commission. So, one part of staff appointed by the SEC and accountable to it was prosecutor; another part appointed by and accountable to it was the judge. Or, the SEC was both prosecutor and judge.

Because the fraud action against Jarkesy involved large monetary penalties the ALJ and SEC eventually adopted, the whole procedure was subject to various provisions of the Constitution, including Article VII of the Bill of Rights.

It provides: “In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved …” After many procedural twists and turns, the SEC’s handling of the case in-house without a jury, its decision to fine Jarkesy was appealed to the Fifth Circuit Court.

That court agreed Jarkesy was deprived of his constitutional right to a jury trial and that Congress had unconstitutionally delegated its legislative power to the SEC by not providing it at least with an intelligible principle by which to decide whether to handle the matter in house or via the courts.

The Supreme Court granted an appeal by the SEC on both issues. If the Supreme Court upholds the circuit court ruling, one analysis stated, “it could essentially put an end to federal administrative proceedings nationwide, shocking administrative agencies and flooding the federal court system with cases once reserved for administrative agencies’ in-house review.”

In short, it would at least rein in the modern administrative state and return us to constitutional methods and structures to be determined by subsequent congressional action.

After a dozen years, Jarkesy would get justice and federal agencies, including the Department of Labor, Environmental Protection Agency and dozens more – the administrative state – would have to be reformed to the Constitution. This would benefit all Nevada businesses.

(This article originally appeared in Nevada Business.)

Ron Knecht

Ron Knecht

Senior Policy Fellow

Ron Knecht, MS, JD & PE(CA), is a Senior Policy Fellow at the Nevada Policy Research Institute.  Previously, he served Nevadans as State Controller, a higher education Regent, Senior Economist, college teacher and Assemblyman.  Contact him at