SEC’s use of in-house courts curbed by US Supreme Court | USAEMALL.com

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The US Supreme Court has ruled that the Securities and Exchange Commission may not use its own in-house courts when seeking civil penalties in fraud cases, in the latest decision to curb federal agencies’ powers.

The high court on Thursday held that a defendant must have access to a jury trial when the SEC is seeking civil penalties for securities fraud, citing the constitution’s Seventh Amendment, which protects individuals’ rights to a jury trial for civil cases.

In a 6-3 decision penned by Chief Justice John Roberts, the court’s majority said the matter “implicates the Seventh Amendment” since the “SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury”.

The ruling curbs the SEC’s internal adjudication powers while also raising questions about similar enforcement mechanisms used by agencies across the US to adjudicate a broad swath of claims, from social security petitions to securities laws violations.

The SEC has the option to bring cases in federal district courts. But pursuing cases in-house tends to be more straightforward for the regulator compared with navigating potentially lengthy discovery processes, jury trials and additional oversight.

The regulator has argued that pursuing charges internally does not violate the constitution and that Congress gave it power to adjudicate enforcement proceedings under securities laws as a means to ensure investor protection.

The SEC did not immediately respond to a request for comment.  

The case, SEC vs Jarkesy, involves a radio talk show host and hedge fund manager, George Jarkesy, who was charged with fraud in the SEC’s in-house administrative court in 2013.

Jarkesy sought to dismiss this proceeding, but the SEC’s in-house judge rejected his motions. He had asked the US Supreme Court to find the regulator’s in-house court unconstitutional, arguing that it denies defendants their right to a jury trial and flouts separations of power between the legislative and executive branches of government, among other issues.