SCOTUS To Assess Legality Of SEC's Employment Of In-House Judges

The U.S. Supreme Court has decided to scrutinize a ruling that questioned the constitutionality of employing in-house judges to manage cases brought forward by the Securities and Exchange Commission (SEC).

SCOTUS will deliberate on an appeal by the Biden administration, which argues that the federal appeals court ruling could have extensive repercussions throughout the government if not reversed, Bloomberg reports.

Implications for Federal Regulators

The case is set to add to a 2023-24 term that is already expected to have wide-ranging implications for federal regulators. The justices are also set to consider the constitutionality of the Consumer Financial Protection Bureau’s funding system and whether to overturn a precedent that gives agencies discretion when interpreting ambiguous congressional directives.

5th Circuit's Decision

The 5th Circuit, in a 2-1 decision, stated that Congress violated the Seventh Amendment, which safeguards the right to a jury trial in civil lawsuits, by allowing the SEC to request an administrative law judge to impose penalties instead of going to federal court. The 5th Circuit also opined that Congress provided the commission with excessive discretion to determine which cases will be heard by its in-house judges.

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The Case of George Jarkesy

The decision originated from an SEC complaint against George Jarkesy, a hedge fund manager accused in 2013 of misleading investors about the prime broker and auditor of the funds and their investment strategies and holdings. An administrative law judge found Jarkesy guilty of securities fraud, and the SEC eventually ordered him to pay nearly $1 million.

Administration Appeal

U.S. Solicitor General Elizabeth Prelogar, the Biden administration’s top Supreme Court lawyer, is representing the SEC. She argues that Congress may authorize an agency to handle certain types of cases in-house rather than going to federal court, where the Seventh Amendment jury-trial right would apply.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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