Supreme Court Limits SEC's Use of In-House Tribunals in Securities Fraud Cases
From the desk of Jim Eccleston at Eccleston Law
As reported by InvestmentNews, the Supreme Court ruled in SEC v. Jarkesy that the SEC must bring actions seeking civil penalties for securities fraud in a court of law, where defendants are entitled to a trial by jury. This 6-3 decision curtails the SEC’s use of in-house tribunals led by Administrative Law Judges (ALJs) to adjudicate fraud actions, aligning with a broader trend to limit the administrative state.
Though the SEC had already shifted its approach, limiting administrative proceedings to settled cases and bringing litigated cases to federal court, InvestmentNews reports that this decision firmly establishes the requirement for jury trials in fraud cases. The Court’s analysis indicates that Jarkesy may signal similar changes for other federal agencies seeking civil penalties through internal proceedings.
The Court concluded that civil penalties designed to punish and deter, rather than compensate, must be enforced in courts of law, implicating the Seventh Amendment right to a jury trial.
This analysis suggests that enforcement actions by any federal agency, aiming to punish and deter, must be tried in federal courts.
Following the Jarkesy ruling, the SEC will likely avoid using ALJs for securities fraud matters, handling cases in federal court instead. According to InvestmentNews, this decision may impact approximately 200 open administrative proceedings and force the SEC to reconsider its approach to enforcement actions.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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