The U.S. Supreme Court rejected on Thursday the Securities and Exchange Commission’s in-house enforcement of laws protecting investors against securities fraud, dealing a blow to the agency’s powers in a ruling that could reverberate through other federal regulators.
“The SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury,” Roberts wrote. Jarkesy was supported in the case by numerous conservative and business groups, which long have complained about the regulatory reach of the federal “administrative state” in areas such as energy, the environment, climate policy, workplace safety and financial regulation.
SEC critics have said the agency has an unfair advantage litigating cases before its home-turf judges rather than before a jury in federal court. The SEC, which enforces various U.S. laws that protect investors, pursued 270 new in-house proceedings in the fiscal year that ended on Sept. 30, compared to 231 in federal court.
Sotomayor criticized the ruling as elevating the judiciary and the Supreme Court over the other branches, calling it a “power grab.” The SEC in 2011 began investigating Jarkesy, who founded two hedge funds with his Houston-based investment advisory firm, Patriot28 LLC. The funds had about 120 investors and roughly $24-million in assets under management.
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