SCOTUS May Drastically Change How SEC Judges Fraud

On Wednesday, conservative justices on the Supreme Court were receptive to a challenge to the SEC’s fraud-fighting tactics in a case that may impact other regulatory bodies.

Several constitutional arguments to the SEC’s enforcement efforts were presented in Wednesday’s case, but the justices mostly ignored all except one: the claim that George R. Jarkesy, a hedge fund manager, by the Securities and Exchange Commission (SEC), had his right to a jury trial was infringed by the agency’s internal fact-gathering procedure. According to the six conservative justices, no administrative agency can impose sanctions without providing a jury trial alternative.

The justices spent almost two hours listening to arguments in the Biden administration’s appeal of a lower court decision overturning the severe financial penalties levied on Jarksey.

Most of the nine-member courts proposed that individuals facing fraud charges from the SEC should be allowed to hear their cases by a federal jury rather than the SEC’s administrative law judges.

In its defense of Jarkesy, the Democratic government cites a court ruling from half a century ago that upheld the constitutionality of in-house processes, holding that they did not infringe upon the right to a jury trial in civil litigation.

Justice Brett Kavanaugh expressed concern at the idea that the government may seize large amounts of money and property in a tribunal that was viewed as biased.

The judgment might impact more than just the SEC, according to Justice Department lawyer Brian Fletcher, who cautioned the justices that almost two dozen other agencies have comparable enforcement programs.

Fletcher warned that the matter was more complex than the SEC.

In May’s judgment, for example, the court’s conservative six members severely limited their authority to regulate water contamination in wetlands, further reducing their power.

Amid growing worries about the authority of federal regulators, Chief Justice John Roberts observed that “the influence of governmental agencies on everyday life now is vastly more substantial than it was 50 years ago.”

The arguments put forward by the Biden administration seemed to have the support of the three liberal justices on the court. When asked about Roberts’ comments, Justice Elena Kagan said, “Our challenges have become more sophisticated and tough.”