Supreme Court Limits SEC's Enforcement Powers in Fraud Cases

The U.S. Supreme Court has curtailed the Securities and Exchange Commission's (SEC) ability to use in-house judges for adjudicating certain securities law violations, ruling that these proceedings violate the constitutional right to a jury trial. In a 6-3 decision, the court affirmed that defendants facing SEC claims seeking financial penalties must be granted the opportunity for a jury trial in federal court. This ruling could significantly impact the SEC's enforcement capabilities and has broader implications for other federal regulatory agencies.

The case was brought forward by hedge fund manager George Jarkesy, who challenged the SEC's in-house proceedings after facing allegations of securities fraud. The Supreme Court's decision upholds a lower court ruling in favor of Jarkesy, marking a victory for conservative and business groups that have increasingly urged the judiciary to limit the power of federal regulators. In the 2023 government spending year, the SEC secured over $5 billion in civil penalties, though it remains unclear how much of this was obtained through in-house versus federal court proceedings.