Recently, in Jarkesy v. SEC the Fifth Circuit held, among other things, that the SEC’s practice of imposing civil monetary penalties in administrative proceedings was unconstitutional because Congress delegated its legislative power to the SEC without providing an intelligible principle by which the SEC could exercise the delegated power. (See here for the prior post).
Although Jarkesy was not a Foreign Corrupt Practices Act enforcement action, the decision was most certainly FCPA relevant given that – since 2010 – the vast majority of issuer FCPA enforcement actions have been administrative proceedings and in many of these actions the SEC has imposed a monetary penalty. For instance, the SEC’s enforcement action against Goldman Sachs involved an administrative order in which the SEC imposed a $400 million penalty (see here). The SEC’s enforcement action against MTS involved an administrative order in which the SEC imposed a $100 million penalty (see here). The SEC’s enforcement action against Credit Suisse involved an administrative order in which the SEC imposed a $65 million penalty (see here).
Last week, the SEC filed this petition for an en banc rehearing of the case.
In pertinent part, the petition states:
“Under the nondelegation doctrine, Congress may not delegate “powers which are strictly and exclusively legislative.” Gundy v. United States, 139 S. Ct. 2116, 2123 (2019) (plurality). By contrast, the federal government’s decision to enforce the laws is a matter over which “Executive Branch has exclusive authority and absolute discretion.” United States v. Nixon, 418 U.S. 683, 693 (1974); accord Heckler v. Chaney, 470 U.S. 821, 835 (1985).
The majority held that the Commission’s decision to enforce the laws through an administrative proceeding was legislative action in violation of the nondelegation doctrine. The majority’s holding relied on one sentence in INS v. Chadha, 462 U.S. 919 (1983), which held that the House of Representative’s veto of the Attorney General’s decision in an immigration matter violated the Constitution’s bicameralism and presentment requirements. Chadha held that the House’s veto was a legislative act because it “alter[ed] the legal rights, duties and relations of persons, including the Attorney General, Executive Branch officials and Chadha, all outside the legislative branch.” Id. at 952. Based on that sentence, the majority here concluded that the Commission exercised legislative authority because it brought an administrative enforcement proceeding against Jarkesy, which altered the rights that Jarkesy would have had if the Commission had sued in district court. Op. 22-24.
The crucial point in Chadha was that action by Congress was “legislative.” The Court did not suggest that enforcement of the laws by the Executive Branch raises similar concerns. And it has always been understood that in enforcing the laws, Executive Branch officials not only decide whether to institute proceedings, but also must decide what violations to assert, what penalties to seek, and in what forum to proceed. Cf. United States v. Batchelder, 442 U.S. 114, 125-26 (1979) (prosecutor’s choice to charge one criminal violation but not another does not “impermissibly delegate to the Executive Branch the Legislature’s responsibility to fix criminal penalties”). While those charging decisions may affect whether a party “receive[s] certain legal processes,” Op. 24, they are executive, not legislative, actions.
For instance, the United States may choose to charge a defendant with a petty misdemeanor rather than a felony. That decision would deprive the defendant of a right to a jury trial, Baldwin v. New York, 399 U.S. 66, 69-70 (1970), and the requirement for a grand jury, United States v. Linares, 921 F.2d 841, 844 (9th Cir. 1990). The United States may also choose to pursue certain claims in district court or in “any administrative proceeding to determine a civil money penalty.” 31 U.S.C. § 3730(c)(5). Such enforcement decisions are quintessentially executive actions—not “delegations of legislative power.” Big Time Vapes, Inc. v. FDA, 963 F.3d 436, 443 (5th Cir. 2020).”
