The Supreme Court on Thursday dealt a blow to the powers of the Securities and Exchange Commission in a case that challenged the constitutionality of its enforcement proceedings on Seventh Amendment grounds.
The 6-3 opinion by Chief Justice John Roberts held that people facing civil penalties from the SEC can seek to move their cases to a federal trial court and be tried by a jury rather than being forced to have their cases weighed by in-house administrative law judges. The ruling in SEC v. Jarkesy marked a conservative win in a high court term with several key cases that challenged agency powers.
Roberts held that a defendant facing a fraud suit has "the right to be tried by a jury of his peers before a neutral adjudicator."
"Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch," Roberts wrote.
Roberts was pointing to a dissent joined by three Democratic-appointed members. Justice Sonia Sotomayor penned the dissent, which was agreed to by Justices Elena Kagan and Ketanji Brown Jackson.
“The constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress," Sotomayor wrote. “Rather than acknowledge the earthshattering nature of its holding, the majority has tried to disguise it.”
The case involved a Texas -based hedge fund manager and conservative talk radio host, George Jarkesy, who the SEC accused of inflating the value of some of his assets and making false claims, which he denies. The SEC prosecuted him through its internal, juryless adjudication process, in which an SEC-appointed administrative law judge weighed the validity of the evidence against him. Jarkesy said that violated his Seventh Amendment right to a jury trial.
Jarkesy previously achieved favor from the U.S. Court of Appeals for the 5th Circuit in a 2022 ruling, in which the court held that the SEC’s in-house proceedings violated the constitutional right to a jury trial and tore through presidential and constitutional powers.
During oral arguments, Roberts said he thought it was “curious” that federal agencies such as the SEC appeared to exert more leverage on daily life than in the past, a position that a majority of the court appeared to agree with in some capacity.
Jarkesy released a statement expressing gratitude "for the legal process and the rule of law."
The conservative radio host said, "If this could happen to me it could happen to any citizen of this country."
And "after a decade of gross misconduct and blatantly unconstitutional political attacks from the SEC and their in-house court, today the United States Supreme Court ruled that the Constitution still matters," the petitioner added.
Jarkesy's lawyer, S. Michael McColloch, said the decision means that the entire federal government is now "forced to play by the same litigation rules as everyone else — in real courts before real judges, just as our Founders intended."
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Justices have already decided one case this year concerning expansive federal regulatory powers in a challenge to the Consumer Financial Protection Bureau 's funding mechanism, deciding by a 7-2 vote to reject a challenge to the agency's direct funding from the Federal Reserve.
More significant administrative law cases are slated to be handed back any day now, including two cases challenging the 1984 Chevron deference, which instructs federal courts to defer to agencies when a regulatory measure or statute is otherwise ambiguous.
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