Arizona courts are under pressure amid a wave of cases asking the state Supreme Court to intercede for basic fair-trial protections and end juryless securities prosecutions, sources familiar with the matter exclusively told the Daily Caller News Foundation.
For years, the Arizona Corporation Commission (ACC) has been at odds with defense attorneys over securities prosecutions, with the agency winning a majority of its cases, according to defense attorneys. However, sources told the DCNF that Arizonaâs constitution doesnât incorporate the Seventh Amendment, allowing juryless trials to remain in place despite a recent ruling from the Supreme Court.
HOW ARIZONA GOT HERE
Historically, Arizona courts held that the state constitutionâs jury-trial guarantee only preserves the rights that existed at common law when Arizona became a state, but not every civil or statutory claim created afterward. As a result, Arizona does not apply the federal Seventh Amendment to state securities proceedings, and the courts have repeatedly ruled that the amendment simply doesnât reach Arizonaâs administrative machinery.
For decades, that framework has allowed the ACC to run securities-fraud and securities-registration penalty cases entirely in-house without seating a jury. These cases typically involve allegations that someone sold unregistered securities, operated a fraudulent investment scheme, or made misleading statements while raising money from investors under Arizonaâs securities laws.
Under that system, the ACC investigates, prosecutes and adjudicates securities cases inside the agency itself, with the Securities Division acting as the prosecutor. Securities cases typically involve allegations of fraudulent investment schemes, misleading financial statements, or other violations of Arizonaâs securities laws, essentially financial-fraud claims brought against individuals or companies raising money from the public.
Administrative law judges, who work for the ACC, not only hold the hearings, but rule on evidence and make recommendations. The commissioners then issue final orders that can include restitution and civil penalties. Those cases donât follow typical court discovery rules, donât use courtroom evidentiary standards, and donât offer defendants a jury.
Arizona attorney Allen Baskin, who worked for the ACC before embarking on a more than 20-year career defending clients before the agency, told the DCNF that while he has the utmost respect for the Commission and would not suggest itâs corrupt, the process of the ACC is âunfair.â
âThe corporation commission has a securities division, which functions as the prosecutor and prosecutes its cases. can bring cases before the agency, which are heard by administrative law judges who are employees of the agency who make recommendations up to their bosses in the commission. So thatâs a tough process,â Baskin said.
Another source familiar with the matter told the DCNF the administrative process functions more like an in-house tribunal, describing it as âa kangaroo courtâ where âhearsayâ and âirrelevant materialâ were allowed into the record without the standards used in superior court.
THE SUPREME COURT SHIFT
The fuse on Arizonaâs issue lit last summer when the U.S. Supreme Court ruled in SEC v. Jarkesy that you canât haul someone into an agencyâs in-house courtroom and impose fraud penalties without giving them a jury. As the Court put it, âWhen the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.â
Despite that ruling, Arizonaâs courts moved in the opposite direction. In EFG America, LLC v. Arizona Corporation Commission and Sync Title Agency, LLC v. Arizona Corporation Commission, the state Court of Appeals rejected arguments that Jarkesy requires a civil jury when the government seeks monetary penalties for alleged securities violations, keeping Arizonaâs juryless system intact.
But Baskin told the DCNF that rejecting jury trials on the grounds that Arizonaâs system is âdifferentâ from the federal one doesnât track with how the stateâs securities regime was actually built. Arizona modeled its law, and even its procedures, directly on federal securities enforcement, according to Baskin.
âAlthough there are certainly differences, there are direct parallels between our securities act in Arizona and the federal,â Baskin said. âIt turns out that basically when they wrote the modern version of our securities act ⌠the security division sent it to the SEC. The SEC basically helped write our securities act, number one. And number two, the procedure thatâs followed at the corporation commission is directly parallel to how the SEC works. So you, itâs not like you just have, âOkay, securities in one state.â You have a statute that was patterned after the federal statute.â
ACC LEADERSHIP QUESTIONSÂ
While the ACC has long defended its juryless securities prosecutions, a shift emerged on Oct. 3 when Chair Kevin Thompson and Vice Chair Nick Meyers asked Arizona Attorney General Kris Mayes for a formal opinion on whether defendants are entitled to a jury trial.
Thompson and Meyers clarified the request was made on their own behalf, not on behalf of the full Commission.
The letter directly cites Jarkesy and notes that multiple active cases are now challenging the Commissionâs long-standing process. A source familiar with the matter told the DCNF the request marks the first time in years the agencyâs leadership has openly questioned whether its system complies with constitutional limits. Baskin said the move may represent internal differences among the commissioners as to how the agency handles jury-trial questions.
âIt may be as simple as thereâs a resistance to change,â Baskin told the DCNF. âIâve been hustling and trying since 2000. I havenât been waiting. Iâve just been getting pummeled. Iâve been getting regular ass kickings.â
The four main questions Thompson and Meyers posed were whether the ACC is now required to provide jury trials, whether the agency has the constitutional authority to adopt jury trials on its own, whether an existing statute already implies such a right and how much weight Arizona must give to federal securities decisions.
âProtecting Arizona investors is a critical task and we take it seriously. Investors should know that they are investing in a state where the rule of law will protect them and punish those that commit any form of securities fraud. But we are cognizant that defendants have rights and should be treated with fairness and dignity,â Thompson and Meyers wrote.
âWe ask that the Attorney General be mindful of the publicâs right to due process and fairness in responding to our inquiry. As regulators and judges, we strive to uphold all aspects of due process and fairness in our Commission proceedings,â Thompson and Meyers added.
The ACC declined to comment to the DCNF on the issue as its pending in ongoing litigation. Mayes did not respond to the DCNFâs request for comment on the issue.
Despite the shift among commissioners, lawmakers have made no public push to address the question in recent years. One source familiar with the issue told the DCNF the lack of political urgency isnât surprising, arguing the current system benefits the state.
THE JURYLESS SYSTEMâS FUTURE
For defendants, the problem isnât just the outcomes, itâs the architecture. Sources describe the current setup as one built for agency convenience rather than constitutional protection, arguing the ACCâs structure creates a built-in advantage for regulators because the same agency investigates, prosecutes and adjudicates the case.
One source familiar with the issue told the DCNF the system functions like a âkangaroo court,â adding that many defendants believe the process is designed to keep challenges contained inside the agency. âThe prosecution success rate here in Arizona over the last 30 years is over 95 percent,â the source said.
Baskin pushed back on broader conspiratorial claims but agreed the structure itself is the problem. âAs someone who has complete respect for people that work in government. I get the mission and respect it,â Baskin told the DCNF. âBut man, we just want a fair fight.â
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