The SEC’s future is in the Supreme Court’s hands

This week, the Supreme Court heard arguments in a three-part case challenging the constitutionality of the Securities and Exchange Commission (SEC).

The case was brought by hedge fund manager George Jarkesy, who in 2013 was found guilty of fraud by the SEC and ordered to pay fines totaling nearly $1 million. Jarkesy sued the SEC shortly thereafter, claiming its process for fining him was unconstitutional because the agency used one of its in-house administrative law judges to hear the case, rather than filing a suit in federal court.

• Last year, a federal appeals court in New Orleans ruled in Jarkesy’s favor and found the SEC in-house courts unconstitutional for several reasons, including violating the Seventh Amendment right to trial by jury in certain circumstances.

🗣️ The arguments: Lawyers for Jarkesy claim cases heard by the SEC’s in-house judges – who are appointed by the same officials that determine which cases they hear – should instead be tried as civil cases in the federal court system, a point which most SCOTUS members seemed to agree with in oral arguments this week.

• On the flip side, the SEC claims its in-house court system falls under one of several exemptions to the Seventh Amendment right to a jury trial. Agency officials cite a 1979 Supreme Court precedent in which Justices unanimously agreed it was constitutional for federal law to impose civil penalties for workplace-safety violations through administrative proceedings, rather than jury trials.

👀 Looking ahead… The Court’s final decision in the case is expected by next summer. Depending on its scope, the ruling could open the door to legal attacks on administrative courts at other federal agencies, including the FTC, Department of Labor, and National Labor Relations Board.

📊 Flash poll: In your opinion, should the SEC be allowed to use its in-house court system to hear cases?

• Yes
• No
• Unsure/other