Breaking: SEC Powers Weakened By Supreme Court, Stripped Of In-House Fraud Legal Proceedings
The United States Supreme Court dealt the Securities and Exchange Commission (SEC) a massive blow regarding securities law enforcement Thursday in a new ruling that sees the federal regulator stripped of its controversial appointment of in-house judges during fraud proceedings.
Supreme Court Votes To Change SEC Legal Proceedings In Fraud Cases
In a 6-3 vote, the nation’s highest court agreed with hedge fund manager George Jarkesy after the SEC claimed that he defrauded investors in 2013.
Jarkesy was ordered to pay $300,000 in fines, while his investment advisory firm Patriot28 had to repay over $680,000 in fraudulent gains after an administrative law judge (ALJ) decided the SEC’s case against him.
The ruling greatly cripples the SEC’s enforcement powers when it comes to securities law, as fraud defendants will now be granted a trial by jury in federal court in lieu of the SEC’s internal judicial process.
According to a November 2023 press release, the securities regulator collected nearly $5 billion in fines last year alone – surpassed only by 2022’s record-breaking $6.4 billion.
Should the SEC want to impose a fine in a case, the regulating agency must now seek approval through federal court.
SEC Faces Pushback After Justices Vote Against Internal Enforcement Systems
In Associate Justice Neil Gorsuch’s concurring opinion, the former appeals judge noted that even “the least popular among us” should be able to “resolve his case under procedures designed to ensure a fair trial in a fair forum.”
“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Chief Justice John Roberts concluded. “Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands.”
🚨WHAT DOES THIS MEAN?: The move essentially hamstrings all federal agencies, not just the @SECGov, by burdening them with having to try their cases in federal court. The Supreme Court ruled that the SEC’s use of in-house judicial processes to bring charges are unconstitutional. https://t.co/uk5OU75ZBP
— Eleanor Terrett (@EleanorTerrett) June 27, 2024
Associate Justice Sonia Sotomayor led the ruling’s dissenting opinion, arguing that the administrative legal system has benefits such as “uniformity, predictability, and greater political accountability.”
“There are good reasons for Congress to set up a scheme like the SEC’s,” Sotomayor stated.
The ruling could have a sweeping impact on several federal agencies’ internal enforcement proceedings, including the Federal Trade Commission (FTC) and Consumer Finance Protection Bureau (CFPB).
Thursday’s landmark decision marks a formal pushback against the SEC on what many in the crypto community feel is executive overreach by the securities regulator.
The SEC has filed several lawsuits against key players in the crypto sector in recent years. Crypto exchange Coinbase announced earlier Thursday that it had filed litigation against the government agency, however.
