Regulation
Musk and Mark Cuban Team Up to Challenge SEC Trial Tactics
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Elon Musk and Mark Cuban have joined forces, presenting a joint amicus brief to the Supreme Court. They challenge the Securities and Exchange Commission’s (SEC) method of conducting in-house trials without juries. The crux of their argument is that such administrative proceedings yield unequal results for SEC defendants. Consequently, this practice has been deemed questionable, especially when the right to a jury trial, as laid out in the Seventh Amendment, could be at stake.
The backdrop of this challenge involves a case known as SEC v. Jarkesy. In this instance, plaintiff George Jarkesy claims his Seventh Amendment rights were compromised. He asserts that the SEC’s juryless, internal adjudication process led by a commission-appointed administrative law judge goes against these rights. This essentially amounts to a single entity serving as the judge, jury, and executioner.
SEC Admits Fault, Billionaires Demand Change
Interestingly, Musk and Cuban highlighted a change in the SEC’s approach between 2013 and 2014. They noted that the SEC began to handle more cases in-house, rather than in federal courts. This shift occurred after a series of unsuccessful insider trading cases before juries. However, this method of sidestepping jury trials has been fraught with issues. Significantly, the SEC admitted in April 2022 that their personnel wrongly accessed files in various cases, one of them being Jarkesy’s.
Additionally, despite this oversight, the SEC introduced new regulations for public companies. Effective from July 26, these guidelines demand companies to reveal significant data breaches within four days. Moreover, it’s worth noting that the SEC identified its internal control deficiencies leading to inappropriate file sharing in 2021, but only reported it a year later.
Conflict Deepens Over SEC Judicial Practices
On the flip side, Justice Department Solicitor General Elizabeth Prelogar argues that the 5th Circuit’s ruling in favor of Jarkesy was misguided. She believes that Congress did not breach the Seventh Amendment by allowing the SEC to initiate administrative proceedings for civil penalties. Hence, she’s urging the Supreme Court to change its decision.
Currently, the CEO renowned for transforming Twitter into X is confronting his third significant legal challenge from the financial watchdog, following previous lawsuits in 2018 and 2019. Now, the authority is seeking a federal court’s intervention to compel testimony from Musk regarding his takeover of Twitter, focusing on his public statements related to the transaction, as revealed by judicial documents.
However, Musk and Cuban’s stance remains firm. They’re urging the justices to support the 5th Circuit’s verdict. Their lawyers argue that choosing administrative proceedings over available federal court juries contradicts the SEC’s mission. Additionally, such choices could potentially harm investors and the markets the SEC pledges to safeguard.
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