Critics Decry SCOTUS Ruling in SEC Case as Victory for the Wealthy and Powerful

The U.S. Supreme Court on Thursday ruled along ideological lines that the Securities and Exchange Commission cannot use in-house legal proceedings to civilly penalize fraudsters, a decision that could strike a devastating blow to federal agencies’ ability to fight corporate crime.

In the 6-3 decision, the high court’s conservative supermajority deemed the SEC’s in-house proceedings unconstitutional, siding with the U.S. Chamber of Commerce and other big business-aligned organizations that weighed in on the side of the plaintiff — conservative radio host and hedge fund manager George Jarkesy, who was accused by the SEC of defrauding investors and ordered to pay a $300,000 civil penalty.

Jarkesy argued the SEC proceedings violated his Seventh Amendment right to a jury trial. But as Vox’s Ian Millhiser observed, “the Constitution treats civil trials very differently from criminal proceedings.”

“While the Sixth Amendment provides that ‘in all criminal prosecutions’ the defendant is entitled to a jury trial,” Millhiser wrote, “the Seventh Amendment provides a more limited jury trial right, requiring them ‘in suits at common law.'”

Millhiser argued that with its ruling in SEC v. Jarkesy, the high court effectively “lit a match and tossed it into dozens of federal agencies.”

The Supreme Court’s three liberal judges dissented from Thursday’s decision, with Justice Sonia Sotomayor denouncing the ruling as “a power grab” with potentially “momentous consequences.”

“Today’s ruling is part of a disconcerting trend: When it comes to the separation of powers, this court tells the American public and its coordinate branches that it knows best,” Sotomayor wrote, warning that the decision “means that the constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress.”

Congress would have to give a bunch of federal agencies VASTLY more money and personnel to handle all the jury trials they would need to conduct to patch the hole that SCOTUS just blew in their enforcement powers. It won't happen. This case will just let lawbreakers off the hook.

— Mark Joseph Stern (@mjs_DC) June 27, 2024

Consumer advocates and watchdog organizations warned the high court’s decision in SEC v. Jarkesy could have implications that extend well beyond the Securities and Exchange Commission, given that other key agencies — including the Federal Trade Commission, the Federal Mine Safety and Health Review Commission, and the Environmental Protection Agency — use internal legal proceedings overseen by an administrative law judge.

The Associated Press noted Thursday that the SEC “had already reduced the number of cases it brings in administrative proceedings pending the Supreme Court’s resolution of the case.”

“Today’s decision is another step in the long-term corporate project of neutering federal agencies’ ability to protect the public from fraudsters, rip-offs, dangerous products, carbon polluters, and more,” Robert Weissman, president of Public Citizen, said in a statement. “The decision will have near-term consequences for the financial system, as it hinders the SEC’s ability to seek critical penalties.”

As a result of Thursday’s ruling, said Weissman, some federal agencies “will need new authority from Congress, which is not doing much legislating, in order to be able to enforce the law.”

“The decision extols the Seventh Amendment, but shows little respect for the separation of powers that is at the heart of our constitutional system,” Weissman added. “There’s also more than a little irony in this court touting the right to access the court system, when it has broadly allowed companies to require consumers to use arbitration rather than protecting their right to access the courts.”

As Politico reported last month, an “alliance of tech billionaires, conservative legal activists, and the business lobby” joined the fight to strip the SEC of the key enforcement tool.

The outlet noted that “since Jarkesy was filed, companies including Meta, SpaceX, and Amazon have escalated it into a broader fight against federal power by suing other agencies over their own courts — a way of fighting unfavorable judgments by attacking the system that delivered it.”

The Revolving Door Project noted in an analysis released Thursday that at least 13 organizations with “ties to court-whisperers and judicial gift-givers like Leonard Leo, Charles Koch, Paul Singer, Harlan Crow, and wealthy elites in the Horatio Alger Association in which Clarence Thomas is a key member” submitted amicus briefs supporting Jarkesy’s fight against the SEC.

“Some of the organizations that supported the weakening of the SEC have direct ties to the powerful friends and benefactors of the court,” the group said. “The very same people who are flying Clarence Thomas and Samuel Alito to vacation destinations on private jets are closely tied to organizations that are urging the court through amicus briefs to rule in a manner favorable to corporate wrongdoers.”

Caroline Ciccone, president of the watchdog group Accountable.US, said in a statement Thursday that the Supreme Court’s decision “is a victory for the wealthy and powerful, delivered by a Supreme Court conservative majority all too used to putting corporations, Wall Street, and billionaire benefactors over everyday Americans.”

“In gutting the federal government’s ability to enforce laws enacted by Congress, this ruling gives special interests even more power to set the rules for the rest of us,” said Ciccone. “Let’s be clear: This is a power grab that will ultimately harm ordinary people by making it harder for federal agencies to hold corporations accountable for misdeeds.”