Supreme Court curbs SEC powers to enforce securities laws
WASHINGTON — The Supreme Court on Thursday put new limits on the power of the Securities and Exchange Commission to enforce securities laws — the latest ruling in a series of cases that take aim at federal agencies.
The court ruled 6-3 that adjudication of cases by in-house judges violates the right to trial by jury.
The case is one of several on the docket involving conservative and business-led attacks on the power of federal agencies. The court’s 6-3 conservative majority is often sympathetic to such arguments.
The challenge zeroed in on how the SEC enforces securities laws, including those prohibiting insider trading. The SEC has long used in-house proceedings presided over by administrative law judges. The agency can also sue in federal court. In both sets of proceedings, it can seek financial penalties.
Those subject to the in-house adjudication have complained, saying the process violates their rights and it gives the SEC too much power by essentially creating a home-court advantage.
Hedge fund manager George Jarkesy brought the legal challenge after he faced SEC claims that he violated securities laws by making misstatements and omitting relevant information in communications with investors while he was overseeing two hedge funds.
Jarkesy and his firm were ordered to pay a $300,000 penalty, and he was barred from certain roles in the securities industry after being subjected to an in-house proceeding in 2014. The firm was also ordered to return nearly $685,000 in what the SEC considered “illicit gains.”
Jarkesy’s legal crusade had the backing of billionaires Elon Musk and Mark Cuban.
A three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals ruled against the agency, prompting the SEC to ask the Supreme Court to intervene.