Economy

Fifth Circuit Bashes the Administrative State, Rules in Favor of GOP Political Donor and Show Host Accused of Securities Fraud by SEC

AARON KELLER May 19th, 2022, 1:47 pm

The U.S. Court of Appeals for the Fifth Circuit on Wednesday issued a scathing 30-page opinion which excoriates administrative agencies in general and the Securities and Exchange Commission in particular.

The court’s 2-1 holding said that the SEC’s administrative proceedings against a right-wing talk show host, Republican donor, and hedge fund promoter accused of securities fraud violated at lest two separate clauses of the U.S. Constitution. It also said that the President of the United States should have more power to remove SEC judges from office. The upshot of the Fifth Circuit’s opinion was to vacate an SEC judgment that previously required the host, donor, and hedge fund promoter — whose political activities and media appearances were not mentioned or addressed in the opinion — to disgorge alleged “ill-gotten gains” and pay SEC-imposed fines — all of which totaled nearly a million dollars.

The majority analysis supported “limiting federal government power over crime” and bemoaned the effects of the “strong hand of the federal government.” Citations to English common law treatises, Thomas Jefferson, James Madison, and the Federalist Papers jockeyed with and perhaps even overwhelmed citations to actual case law and constitutional provisions in the majority opinion, though the latter were naturally part of the analysis.

The SEC accused George R. Jarkesy Jr. of having “worked closely with” another individual “to launch two hedge funds that raised $30 million from investors,” according to a 2013 press release. “Jarkesy and his firm John Thomas Capital Management (since renamed Patriot28 LLC) inflated valuations of the funds’ assets, causing the value of investors’ shares to be overstated and his management and incentive fees to be increased. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds’ auditor and prime broker.”

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