Supreme Court Rules Against SEC in Major Blow to Administrative State

On Thursday, the Supreme Court of the United States issued a ruling declaring that defendants who have been accused of fraud by the Securities and Exchange Commission (SEC) must have the right to go through a trial by jury.

According to Axios, the ruling in SEC v. Jarkesy is the culmination in a years-long effort by conservatives in the financial sector to weaken the power of the SEC, a powerful federal agency. The ruling has implications for other federal agencies beyond the SEC, including the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the Labor Department, which up to this point have relied on administrative law judges, who report directly to the agencies, to carry out such trials.

“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” wrote Chief Justice John Roberts in the majority opinion.

The case originated when two hedge funds run by George Jarkesy were declared by the SEC to be fraudulent. His case was brought before an administrative law judge, who ordered Jarkesy to pay a fine of $300,000, on top of disgorging another $685,000 in profits that were allegedly illicit. But when Jarkesy appealed his case to the 5th Circuit Court of Appeals, the court ruled that he had a 7th Amendment right to a trial by jury. This ruling was upheld by the Supreme Court.

Following a similar ruling in 2018, the SEC would occasionally take its most serious cases to the actual judicial branch rather than maintaining an in-house judge. But this new ruling means that all SEC cases, big or small, may now have to undergo regular trials by jury.

“The SEC doesn’t have infinite resources, and so if the cost of settlement goes up, it means they’re going to have fewer resources to bring enforcement actions,” said James Tierny, former staff attorney for the SEC.

The ruling was by a margin of 6 to 3, with all Republican-appointed justices siding with Jarkesy while the three Democrat-appointed justices sided with the SEC.