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Supreme Court Mandates SEC Use Jury Trials for Fraud Cases
The SEC won't be able to handle fraud cases in-house going forward.
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The Supreme Court has ruled that the Securities and Exchange Commission (SEC) cannot use in-house proceedings to enforce fraud cases, mandating jury trials in federal court instead.
What's the scoop?
- In a 6-3 decision, the justices declared that the SEC’s in-house civil fraud proceedings violate the Constitution.
- Notably, the ruling affects other federal agencies that rely on in-house proceedings for civil penalties.
- For the majority opinion, Chief Justice John Roberts emphasized the right to a jury trial before a neutral adjudicator for those accused of fraud.
- In the dissent, Justice Sonia Sotomayor warned that the decision undermines many federal agencies' enforcement capabilities, calling it a victory for those seeking to dismantle the administrative state.
- The decision stemmed from the case of Houston hedge fund manager George R. Jarkesy, who was fined $300,000 and ordered to repay $680,000 in ill-gotten gains by an SEC administrative law judge. The 5th U.S. Circuit Court of Appeals previously ruled in Jarkesy’s favor, stating the case should have been tried in federal court.
Bankless take:
This landmark ruling is a significant blow to the SEC's enforcement mechanism, potentially leading to a surge in federal court cases and making it more challenging for the SEC to swiftly penalize securities fraud. Regulatory agencies will need to adapt quickly, possibly seeking new legislative support from Congress to regain some of their lost authority.