In conservative win, Supreme Court limits use of SEC in-house tribunals

A divided Supreme Court on Thursday invalidated the Securities and Exchange Commission’s use of in-house legal proceedings to discipline those it believes have committed fraud — a blow to the federal agency in one of several cases this term challenging the power of the executive branch., the court said the SEC’s reliance on internal tribunals, rather than federal courts, to bring enforcement actions in securities fraud cases violates the Constitution.

The challenge was brought by George Jarkesy, who set up two hedge funds and used a company named Patriot28 LLC to advise on those investments. The funds had more than 100 investors and about $24 million in assets.The SEC launched an investigation into Jarkesy and Patriot28’s investing activities in 2011, and the agency alleged in 2013 that they made several misrepresentations and overvalued the funds’ assets to increase fees they charged investors.

Jarkesy and the companies represented to brokers and investors that a prominent accounting firm served as the funds’ auditor and that a prominent investment bank served as their prime broker, the government said in its brief, even though “the firm never audited the funds and the bank never opened a prime brokerage account for them.”

After an internal tribunal found the violations, the SEC ordered Jarkesy and Patriot28 to pay $300,000 in a civil penalty and turn over nearly $685,000 in illicit profits. Individuals and entities who face such proceedings have the right to challenge adverse rulings in federal court. Jarkesy did so, and the conservative appeals court threw out the findings against him on three grounds: that they violated the Seventh Amendment, that Congress exceeded its powers in allowing the SEC the choice to bring actions either in-house or in district court, and that the removal procedures for administrative law judges who hear such proceedings provide too much protection.

Law Law Latest News, Law Law Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Supreme Court strips SEC of key enforcement power to penalize fraudThe Supreme Court ruled 6-3 along ideological lines that defendants facing civil penalties for securities fraud are entitled to a jury trial.
Source: CBSHealth - 🏆 480. / 51 Read more »

Supreme Court curbs SEC powers to enforce securities lawsLawrence Hurley covers the Supreme Court for NBC News.
Source: NBCNewsHealth - 🏆 707. / 51 Read more »

The Supreme Court strips the SEC of a critical enforcement tool in fraud casesThe Supreme Court has stripped the Securities and Exchange Commission of a major tool in fighting securities fraud in a decision that also could have far-reaching effects on other regulatory agencies.
Source: ksatnews - 🏆 442. / 53 Read more »

The Supreme Court strips the SEC of a critical enforcement tool in fraud casesThe Supreme Court has stripped the Securities and Exchange Commission of a major tool in fighting securities fraud in a decision that also could have far-reaching effects on other regulatory agencies. The justices ruled Thursday in a 6-3 vote that people accused by the SEC of fraud have the right to a jury trial in federal court.
Source: AP - 🏆 728. / 51 Read more »

The Supreme Court strips the SEC of a critical enforcement tool in fraud casesThe Supreme Court has stripped the Securities and Exchange Commission of a major tool in fighting securities fraud in a decision that also could have far-reaching effects on other regulatory agencies.
Source: wjxt4 - 🏆 246. / 63 Read more »

Supreme Court makes it harder for SEC to punish fund managers accused of defrauding investorsSupreme Court rules that fund managers accused of fraud have a right to a jury trial.
Source: latimes - 🏆 11. / 82 Read more »