The
U.S.
Supreme
Court
ruled
Thursday
to
strip
the
U.S.
Securities
and
Exchange
Commission
(SEC)
of
one
of
its
key
enforcement
processes,
deciding
in
a
6-3
vote
that
the
federal
agency’s
use
of
in-house
judges
is
a
violation
of
the
constitutional
right
to
a
jury
trial.
In
the
past,
the
SEC
has
sometimes
used
an
internal
process
presided
over
by
administrative
law
judges,
rather
than
suing
in
federal
court,
to
handle
civil
securities
fraud
accusations
and
levy
financial
penalties.
The
SEC’s
ability
to
handle
matters
internally
was
granted
in
2010
by
the
passage
of
the
Dodd-Frank
Act
in
response
to
the
2008
global
financial
crisis.
After
the
Supreme
Court’s
decision,
the
SEC
will
be
forced
to
once
again
rely
solely
on
federal
trial
courts
to
enforce
securities
laws
and
seek
financial
penalties.
In
addition
to
kneecapping
the
SEC’s
enforcement
abilities,
the
decision
could
have
far-reaching
implications
for
other
federal
agencies
who
have
historically
been
able
to
handle
enforcement
via
internal
processes,
including
the
National
Labor
Relations
Board
(NLRB)
which
is
facing
a
similar
challenge.
“Today’s
decision
imposes
an
import
and
significant
restriction
on
federal
agencies’
ability
to
adjudicate
enforcement
actions
internally
rather
than
trying
their
cases
in
court.
Although
this
case
involves
the
SEC,
many
other
federal
agencies
bring
enforcement
actions
based
on
statutory
standards
that
closely
resemble
fraud
or
other
common
law
claims,”
said
Andrew
Pincus,
partner
at
international
law
firm
Mayer
Brown
in
an
emailed
statement.
“The
Supreme
Court’s
decision
indicates
that
all
of
those
actions
will
now
have
to
be
tried
before
an
independent
federal
judge
and
a
jury—eliminating
the
“home
court
advantage”
that
has
benefited
many
agencies
for
decades,”
Pincus
added.
Chief
Justice
John
Roberts
delivered
the
majority
opinion,
writing,
“A
defendant
facing
a
fraud
suit
has
the
right
to
be
tried
by
a
jury
of
his
peers
before
a
neutral
adjudicator.”
“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,”
Roberts
wrote.
“That
is
the
very
opposite
of
the
separation
of
powers
that
the
Constitution
demands.”
In
a
concurring
opinion,
Associate
Justice
Neil
Gorsuch
argued
that
the
SEC’s
authority
to
“penalize
citizens
without
a
jury,
without
an
independent
judge,
and
under
procedures
foreign
to
our
courts”
are
a
violation
of
individual
liberty.
“In
reaffirming
all
this
today,
the
Court
hardly
leaves
the
SEC
without
ample
powers
and
recourse,”
Gorsuch
wrote.
Some
crypto
cases
have
been
among
those
resolved
by
the
SEC
via
administrative
proceedings,
including
its
2018
case
against
Michigan-based
“ICO
Superstore”
TokenLot
LLC
and
its
two
owners,
and
its
2014
case
against
a
computer
programmer
who
created
a
crypto-denominated
virtual
stock
exchange.
Associate
Judge
Sonia
Sotomayor
wrote
the
dissenting
opinion,
calling
the
ruling
a
“power
grab”
and
“part
of
a
disconcerting
trend:
when
it
comes
to
the
separation
of
powers,
this
Court
tells
the
American
public
and
its
coordinate
branches
that
it
knows
best.”
“The
Court
tells
Congress
how
best
to
structure
agencies,
vindicate
harms
to
the
public
at
large,
and
even
provide
for
the
enforcement
of
rights
created
for
the
Government,”
Sotomayor
wrote.
“There
are
good
reasons
for
Congress
to
set
up
a
scheme
like
the
SEC’s.
It
may
yield
important
benefits
over
jury
trials
in
federal
court,
such
as
greater
efficiency
and
expertise,
transparency
and
reasoned
decisionmaking,
as
well
as
uniformity,
predictability,
and
greater
political
accountability.”
The
case,
SEC
vs.
Jarksey,
began
in
2013
when
the
SEC
alleged
that
hedge
fund
manager
George
Jarkesy
Jr.
and
his
firm,
Patriot28
LLC,
violated
federal
securities
laws
by
misstating
his
two
hedge
fund’s
assets.
Instead
of
suing
Jarkesy
in
federal
court,
the
case
was
originally
tried
before
an
administrative
law
judge.
Jarksey
appealed,
and
in
2022
a
New
Orleans-based
appeals
court
ruled
that
the
SEC’s
proceedings
were
unconstitutional.
The
SEC
appealed,
and
the
Supreme
Court
heard
arguments
last
November.
UPDATE
(June
27,
2024
at
16:13
UTC):
Adds
comment
from
an
attorney
and
detail
about
two
of
the
SEC’s
past
crypto-related
administrative
proceedings.
