Eric S. Smith v. Securities and Exchange Commission, et al.

The Securities Exchange Act permits “[a] person aggrieved by a final order” of the Securities and Exchange Commission (SEC) to obtain review of the order in a federal court of appeals. 15 U.S.C. § 78y(a)(1). The Act further states that “[n]o objection” to an SEC order or rule “for which review is sought . . . may be considered by the court unless it was urged before the Commission or there was reasonable ground for failure to do so.” Id. § 78y(c)(1). Petitioner sought judicial review of an SEC final order under Section 78y(a)(1), arguing, inter alia, that the SEC’s imposition of monetary sanctions against him violated his Seventh Amendment rights under SEC v. Jarkesy, 603 U.S. 109 (2024). The Sixth Circuit recognized this claim likely had merit, but refused to consider it because petitioner did not raise the claim before the SEC. In addition, even though the SEC had repeatedly rejected similar jury-trial claims, the court held that exhaustion was not futile because the SEC theoretically could have vacated the sanctions and filed a new action in federal court. The questions presented—on which the circuits are in conflict—are:

1. Whether a statutory issue-exhaustion requirement bars a court of appeals from considering a constitutional claim challenging the inherent nature of the agency proceeding itself, if the party did not present that claim to the agency.

2. Whether a party may satisfy Section 78y(c)(1)’s issue-exhaustion requirement by showing that presentation of a claim to the agency would have been clearly useless or, instead, must show that the agency was formally powerless to grant the relief requested.