tl;dr
The Supreme Court has ruled that defendants in fraud cases have the right to a jury trial in federal court, limiting the Securities and Exchange Commission's (SEC) power. This overturns the SEC's practice of holding some fraud complaints in-house, deeming it unconstitutional. The decision disrupts t...
The Supreme Court has ruled that defendants in fraud cases have the right to a jury trial in federal court, limiting the Securities and Exchange Commission's (SEC) power. This overturns the SEC's practice of holding some fraud complaints in-house, deeming it unconstitutional. The decision disrupts the SEC's approach to handling civil fraud complaints and may impact other regulatory bodies. The case, brought by a hedge fund manager, highlighted the difference in case outcomes between federal courts and in-house proceedings, with the SEC's higher success rate in administrative settings.
The Supreme Court has significantly limited the powers of the Securities and Exchange Commission (SEC) by ruling that defendants in fraud cases have a right to a jury trial in federal court. This ruling overturns the SEC’s long-standing practice of resolving some securities fraud complaints through in-house proceedings, declaring them unconstitutional.
SEC’S IN-HOUSE FRAUD TRIALS RULED UNCONSTITUTIONAL
The Supreme Court’s decision disrupts the SEC's approach to handling civil fraud complaints. Previously, the agency conducted many of these proceedings in-house, where administrative law judges appointed by the SEC presided. However, the court’s recent decision mandates that these cases should instead be heard in federal courts, providing defendants with the constitutional right to a jury trial. The change comes after the agency reported imposing over $5 billion in civil penalties in the 2023 government fiscal year. How much of this amount was secured through in-house proceedings remains to be seen. In anticipation of the Supreme Court’s decision, the SEC had already scaled back the number of cases it initiated in administrative settings.
COURT LIMITS POWERS OF FEDERAL REGULATOR
This ruling alters the SEC’s enforcement strategy and sets a precedent that may affect other regulatory bodies. The decision underscores a broader trend where the current Supreme Court, influenced by conservative and business interests, has sought to limit the scope of federal regulators. For instance, in a prior decision, the court curtailed the powers of environmental agencies to regulate water pollution. Additionally, the case, initiated by Houston hedge fund manager George R. Jarkesy against stiff penalties imposed by the SEC, highlighted the disparity in case outcomes between federal courts and in-house proceedings. Jarkesy’s lawyers pointed out that the SEC had a higher success rate in administrative settings than federal courts, winning almost all cases in the former but only about 60% in the latter.