In one of the first tests of the implications of the Jarkesy decision for other federal regulatory agencies, an individual accused by the FDIC of participating in fraudulent loan activity is asking a federal judge to dismiss the administrative proceeding the FDIC brought against him, contending, among other things, that he is being denied his right to a jury trial.

The FDIC has accused John C. Ponte of engaging in a pattern of misconduct in connection with a loan referral agreement, including by providing undisclosed bridge loans intended to make small businesses look more creditworthy when applying for SBA loans through Independence Bank of Rhode Island.  (The bridge loans were then immediately repaid from the SBA loan proceeds, according to the FDIC.)

Ponte has now responded by challenging the constitutionality of the administrative proceeding based on the Supreme Court’s decision in Jarkesy.

“Being deprived of the right to a jury trial by an administrative agency charging fraud and seeking legal remedies in its in-house tribunal is a violation of a constitutional right,” Ponte’s attorneys wrote on Aug. 19, when they requested the U.S. District Court for the District of Columbia to issue a temporary restraining order while he also challenges the constitutionality of the FDIC and its ALJ program on other grounds. “The Jarkesy decision is fatal to the continued proceeding against Mr. Ponte before the FDIC. The enforcement proceeding violates the Seventh Amendment because it deprives Ponte of his right to a jury trial.”

In the Jarkesy case, decided in June, the Supreme Court said that the SEC’s use of administrative hearings before ALJs to pursue civil penalties for securities fraud was unconstitutional, since it deprived a person accused of violating agency rules the right to a jury trial. Rather than using ALJs, the SEC must file such cases in federal court, where defendants may request a jury trial, the court said.

Initially, the FDIC sought civil penalties against Ponte, but withdrew that request following the Jarkesy decision. The agency is now asking for restitution of more than $4.5 million—the amount of the loans, with some fees attached.

The agency, in its Aug. 23 response to the request for a TRO contended that “The salient difference between this case and Jarkesy is simple: the FDIC’s enforcement proceeding against Ponte involves restitutionary remedies, not damages or penalties. The FDIC seeks to require Ponte to repay the SBA loan applicants who were charged fees that violated the SBA’s regulations. That restitutionary remedy is equitable and does not require a jury.”