WASHINGTON (AP) — The Supreme Court on Thursday stripped the Securities and Exchange Commission of a key tool in the fight against securities fraud in a decision that could also have far-reaching consequences for other regulators.
The justices ruled by a 6-3 vote that people accused of fraud by the SEC, which regulates the securities markets, are entitled to a jury trial in federal court. The internal procedures the SEC used in some civil fraud complaints violate the Constitution, the court said.
The SEC was awarded more than $5 billion in civil penalties in the 2023 government spending year that ended Sept. 30, the agency said in a news release. It was unclear how much of that money came through internal proceedings or lawsuits in federal court.
The agency had already reduced the number of cases it files in administrative proceedings pending the resolution of the case by the Supreme Court.
The case is one of several this term in which conservative and business interests are pushing the nine-member court to limit federal regulators. The court’s six conservatives have already reined them in, including in a decision last year that sharply limited the ability of environmental regulators to monitor water pollution in wetlands.
The Supreme Court rejected arguments by President Joe Biden’s Democratic administration that relied on a 50-year-old decision in which the court held that internal procedures did not violate the Constitution’s right to a jury trial in civil cases.
The judges have ruled in the case of George R. Jarkesy, a hedge fund manager from Houston. The SEC appealed to the Supreme Court after a divided panel of the New Orleans-based 5th US Circuit Court of Appeals imposed stiff financial penalties on Jarkesy and his Patriot28 investment adviser.
The appeals court ruled that the SEC’s case against Jarkesy, which resulted in a $300,000 civil penalty and the restitution of $680,000 in allegedly ill-gotten gains, should have been heard in federal court rather than before one of the administrative law judges of the SEC.
Jarkesy’s attorneys noted that the SEC wins nearly all the cases it takes before administrative law judges, but only about 60% of the cases it tries in federal court.
The appeals court also said Congress unconstitutionally granted the SEC “unfettered authority” to decide whether the case should be tried in court or heard within the executive branch. And it says laws protecting the commission’s administrative law judges from dismissal by the president are unconstitutional.
These issues received virtually no attention during arguments in November, and the court opted to resolve the case solely on the basis of the right to a jury trial.
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