Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—Ariz. App.: Arizona constitution does not require jury trial in securities enforcement case, (Apr 16, 2025)

By Mark S. Nelson, J.D.

The respondents had argued that the U.S. Supreme Court’s Jarkesy opinion regarding federal securities enforcement should apply to similar state proceedings.

Securities fraud respondents in an Arizona administrative proceeding were not entitled to a jury trial in light of U.S. Supreme Court precedent that required such a result at the federal level. The court reasoned that because the Supreme Court had not incorporated civil jury trial rights to the states and the state constitution did not otherwise provide a right to jury trial, the securities fraud respondents must contest the charges in an administrative proceeding before the Arizona Corporation Commission (EFG America, LLC v. Arizona Corporation Commission , No. 1 CA-SA 25-0016 (Ariz. App. Apr. 8, 2025)).

A trio of executives (and two of their spouses) associated with EFG America, LLC were charged with the offer or sale of unregistered securities, engaging in transactions by unregistered dealers or salesmen, and securities fraud. The company’s CEO/president, Douglas Elroy Fimrite, was also charged with control person liability.

According to the charging document, Fimrite allegedly had a history of starting a succession of tire recycling companies that often transferred financial and other assets and intellectual property between them in order to present them as legitimate business to prospective investors. EFG America, LLC was one of those ventures and has returned only $980,000 as compared with the more than $26 million that had been raised from investors. The respondents’ answer admitted that they were not registered in Arizona but asserted that state registration was not required because the subject offering was exempt under federal securities laws.

Relief sought. The Arizona Corporation Commission sought a cease-and-desist order, remedial action by the company, administrative penalties, restitution, and recessionary relief. The several respondents asked for a change of venue, and a state administrative law judge denied their request.

The Supreme Court’s opinion in SEC v. Jarkesy held that respondents in SEC enforcement actions seeking civil penalties for violations of federal securities laws are entitled to a federal court jury trial under the Seventh Amendment. The Supreme Court’s Jarkesy opinion left several questions unsettled regarding its potential reach to other federal agencies. For example, the Supreme Court did not address the nondelegation doctrine and Article II questions that were decided against the SEC by the Fifth Circuit. Jarkesy may have wider ranging consequences at the federal level because, as the dissenting opinion by Justice Sotomayor noted, some federal agencies can only bring in-house enforcement cases. The non-delegation doctrine question has returned to the Supreme Court this term, although jurisdictional issues may preclude a merits decision on that theory. The case was argued in March 2025.

In the case against EFG America, LLC, the Arizona Court of Appeals upheld the state ALJ’s denial of a change of venue to a state trial court. For one, the court said the U.S. Supreme Court has not incorporated the Seventh Amendment to the states. Thus, only state law would apply to the EFG America, LLC case.

Arizona constitution in play. Here, the court explained that the Arizona Corporation Commission was created by the state’s constitution and not by the state legislature. Under Arizona law, a right to a jury trial could arise either under a constitutional provision or by statute, but neither avenue exists with respect to the Commission. As a result, no jury trial right exists in proceedings before the Commission.

The state appellate court also declined to reach the question of whether state case law precedent might require a jury trial because the Commission’s constitutional argument was sufficient to decide the case. The case law argument, however, would have the court mandate a jury trial whenever a modern state statute has a common law antecedent.

The case is No. 1 CA-SA 25-0016.

Judge: Morse, J.

Attorneys: Gregory G. McGill (McGill Law Firm) for EFG America, LLC, Douglas Elroy Fimrite, Mark Boyd, Don Carroll, and Sonia Carroll. Elizabeth M. Schmitt for the Arizona Corporation Commission.

Companies: EFG America, LLC

LitigationEnforcement: BrokerDealers Enforcement FederalPreemption FinancialIntermediaries FraudManipulation InvestorEducation PrivatePlacements SecuritiesOfferings ArizonaNews