In a landmark decision, the U.S. Supreme Court ruled that the U.S. Securities and Exchange Commission (SEC) can no longer use in-house judges to handle securities fraud charges and impose financial penalties.
The court ruled by a vote of 6-3 that this practice violated the constitutional right to a jury trial.
Historically, the SEC used an internal process chaired by administrative law judges to address such matters. This authority was granted with the passage of the Dodd-Frank Act in 2010 in response to the 2008 global financial crisis. But following the Supreme Court's decision, the SEC will now have to rely solely on federal courts to enforce securities laws and seek financial penalties.
This decision could have far-reaching implications for other federal agencies that have historically been able to impose enforcement through internal processes, including the National Labor Relations Board (NLRB), which faces a similar predicament.
Delivering the majority opinion, Chief Justice John Roberts said, “A defendant facing a fraud case has the right to a trial by a jury of his or her peers before an impartial judge.” Roberts criticized the dissenting opinion for allowing Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch, calling it “the exact opposite of the separation of powers required by the Constitution.”
Associate Justice Neil Gorsuch expressed the same opinion, arguing that the SEC's authority to “punish citizens without a jury, without an independent judge, and with procedures foreign to our courts” was a violation of individual liberty.
In her dissenting opinion, Associate Justice Sonia Sotomayor called the decision a “power usurpation” and criticized the court for telling Congress how best to structure institutions and ensure that the rights created for the Government are enforced.
*This is not investment advice.