Suit Challenges FDIC’s Agency Tribunal Due to Lack of a Jury

An individual targeted in an FDIC administrative action has filed a collateral challenge to the agency’s action based on a recent Supreme Court decision which requires a jury trial for government actions which seek money penalties for alleged fraud.

The FDIC previously filed an administrative action against the individual owner of a company which originated applications for a state-chartered bank’s SBA loan program.  The FDIC alleged that the individual committed fraud in connection with these loans, and the proceeding was brought before an FDIC tribunal overseen by an Administrative Law Judge (ALJ) who works for the agency.

The new suit filed by the individual in federal court does not directly address the merits of the FDIC’s action, but instead challenges the agency’s underlying ability to proceed against him in an administrative tribunal.  Among other things, the suit asserts that the FDIC’s action is unconstitutional since it is effectively going after the individual for fraud, and that pursuant to the Supreme Court’s recent decision in SEC v. Jarkesy, defendants in civil fraud cases which seek money penalties are entitled to a jury trial.  Jury trials are not available for administrative cases before an ALJ.

The suit separately alleges, based on other Supreme Court decisions from the last few years, that the FDIC is unconstitutionally structured since its Directors are not removable from office at will by the President, and that the ALJ overseeing the matter is unconstitutionally shielded from removal from office.

The suit is in an early stage and the court has not yet issued any rulings.