Supreme Court Decision Curtails SEC's Use Of Internal Tribunals For Fraud Cases

The U.S. Supreme Court has ruled against the Securities and Exchange Commission (SEC), limiting its use of in-house legal proceedings to discipline those accused of fraud.

What Happened: The Supreme Court, in a 6-3 ruling, declared that the SEC’s use of internal tribunals for enforcement actions in securities fraud cases violates the Constitution, The Washington Post reported. This landmark decision could have significant effects on other regulatory bodies.

The case, SEC v. Jarkesy, was initiated by George Jarkesy, who faced fraud accusations related to his hedge fund activities. In 2013, the SEC charged Jarkesy and his company, Patriot28 LLC, with making several false statements and inflating asset values to boost investor fees.

Based on the findings of an internal tribunal, the SEC imposed a $300,000 civil penalty on Jarkesy and Patriot28 and ordered them to forfeit nearly $685,000 in unlawful profits.

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Chief Justice John G. Roberts Jr. wrote for the majority, emphasizing the defendant’s right to a jury trial. The ruling was opposed by Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson, who warned of potential widespread consequences for federal agencies, according to the Post.

Why It Matters: This ruling is part of a series of cases this term addressing the power of federal agencies, including the SEC.

Just last week, the Supreme Court upheld a 2017 tax on American-owned businesses’ foreign profits. The 7-2 decision stated that Congress has the constitutional power to tax individuals and businesses on their share of undistributed company income. This case was closely watched due to its possible implications for Democratic proposals to impose a wealth tax.

Another recent ruling saw the Supreme Court overturn restrictions on the Biden administration’s interactions with social media platforms. The 6-3 decision allowed the administration to continue requesting the removal of posts deemed as misinformation, despite previous allegations of unconstitutional pressure on the platforms.

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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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