on Thursday limited the power of the Securities and Exchange Commission to enforce security fraud violations, siding with a hedge fund manager and former conservative radio show host who said he was entitled to a jury trial rather than an in-house review by the agency.
The Supreme Court declined to address more existential challenges to the agency's enforcement structure, including claims that could have severely undermined the government's ability to use in-house administrative law judges or protect them from the political whims of a president. She said "momentous consequences that flow from the majority's insistence that the Government's rights to civil penalties must now be tried before a jury in federal court."
But the court's decision was far more narrow than it could have been. The court of appeals in Louisiana, which also ruled against the SEC, embraced a wider series of arguments that could have hobbled enforcement by several agencies. Instead of dealing with those questions, Roberts focused entirely on the question of whether the Seventh Amendment requires jury trials for the types of actions at issue.
The agency accused Jarkesy of overvaluing assets so he could charge higher fees. An administrative law judge - an in-house agency employee who adjudicates such claims - sustained the allegations and ordered Jarkesy to pay a civil penalty of $300,000 and to repay nearly $685,000 in "ill-gotten gains."
The SEC consists of five members appointed by the president and confirmed by the Senate. The commission can enforce a variety of federal statutes in two ways. It can institute administrative enforcement proceedings seeking civil penalties, or it may bring civil actions in federal court.
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