Musk and Cuban said they have an interest in the Jarkesy case because "they believe it is important that the SEC not be permitted to pick and choose whether parties are granted their constitutional right to jury trials or are forced to proceed in enforcement proceedings with administrative law judges immune from proper and meaningful oversight," according to the brief.
The brief was filed on Oct. 18 in conjunction with hedge fund managers Phillip Goldstein, co-founder of Bulldog Investors, and Nelson Obus, co-founder of Wynnefield Capital, and Investor Choice Advocates Network, a nonprofit litigation organization that has a stated mission to "break down barriers to entry to capital markets and push back against the overreach of the Securities and Exchange Commission."
The SEC petitioned the Supreme Court to review the case following a May 2022 decision from the Fifth U.S. Circuit Court of Appeals in New Orleans that sided with the plaintiff and ruled that the SEC's ALJ system was unconstitutional. Specifically, the decision found that the SEC's use of ALJs violated the right to trial by jury, that Congress unconstitutionally delegated to the SEC the power to decide whether securities fraud cases were heard in federal courts or before an ALJ, and that the removal protections given to SEC ALJs were unconstitutional because the president couldn't simply fire them.
The case could hinder the SEC's enforcement apparatus, according to experts.
The administrative process is typically quicker and less burdensome for the SEC when compared to enforcement proceedings in federal court. Also, the case could impact not just the SEC, but all federal agencies that use ALJs, including the Federal Trade Commission and Commodity Futures Trading Commission.
Musk, Cuban and their co-filers argue 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 the involvement of a jury. Such proceedings contravene the protections guaranteed to litigants by the United States Constitution, lead to unequal and unjust results, weaken faith in public institutions such as the SEC, and deprive the public and the market of the type of critical information the SEC claims in other contexts must be disclosed."
The SEC disagrees and next month the Supreme Court will hear both arguments and issue a decision before its term concludes in June.