Title: Supreme Court Ruling Weakens SEC Powers, Eliminates In-House Fraud Legal Proceedings
The Securities and Exchange Commission (SEC) has suffered a significant setback in its enforcement of securities law, as the United States Supreme Court has ruled against its controversial practice of appointing in-house judges during fraud cases.
In a decisive 6-3 vote, the highest court in the nation agreed with hedge fund manager George Jarkesy, who was accused by the SEC of defrauding investors in 2013. Jarkesy was ordered to pay $300,000 in fines, while his investment advisory firm, Patriot28, was required to repay over $680,000 in fraudulent gains. This ruling severely limits the SEC’s power in enforcing securities law, as fraud defendants will now be entitled to a trial by jury in federal court rather than through the SEC’s internal judicial process.
According to a press release from November 2023, the SEC collected nearly $5 billion in fines in the previous year, second only to the record-breaking $6.4 billion collected in 2022. However, moving forward, the SEC will have to seek approval from federal court if it wishes to impose fines in cases.
In a concurring opinion, Associate Justice Neil Gorsuch emphasized the importance of ensuring fair trials for all individuals, even those who are unpopular. Chief Justice John Roberts concluded that defendants facing fraud suits have the right to be tried by a jury and criticized the dissenting opinion for allowing the concentration of power in the hands of the Executive Branch, which goes against the separation of powers mandated by the Constitution. Associate Justice Sonia Sotomayor, leading the dissenting opinion, argued that the administrative legal system provides benefits such as uniformity, predictability, and greater political accountability.
This landmark ruling is expected to have widespread implications for other federal agencies’ internal enforcement proceedings, including the Federal Trade Commission (FTC) and Consumer Finance Protection Bureau (CFPB). It represents a significant pushback against what many in the crypto community view as executive overreach by the SEC, which has filed numerous lawsuits against key players in the crypto sector in recent years. However, it is worth noting that crypto exchange Coinbase announced its own litigation against the SEC earlier on the same day as the ruling.
