The US Securities and Exchange Commission (SEC) has lost its power to use its in-house court to seek civil penalties in fraud cases.
Last week, the US Supreme Court of Justice ruled that a defendant must be able to have their case put before a jury if the SEC is looking to extract a civil penalty for securities fraud.
The ruling was made possible by the US Constitution’s Seventh Amendment, which preserves an individual’s right for a trial by jury in civil cases.
Gurbir Grewal, director of the SEC’s enforcement division, said it would “continue to protect investors and enforce the federal securities laws, including by filing actions in federal court”.
Radio talk show host and hedge fund manager, George Jarkesy, was charged with fraud by the SEC in 2013. He wanted the case dismissed, but was rejected by the SEC’s in-house court and so took it to the Supreme Court where he argued that the SEC’s in-house system was unconstitutional as it did not allow defendants their right to a trial by jury.
The SEC has always been able to take its cases to federal court, but usually takes the quicker option of using its in-house system. The decision has implications for how the SEC deals with civil fraud cases in the future, though it has already reduced the number of cases it tries internally in recent years.
The ruling is significant because it is seen by many as the latest attempt by Republicans to strip financial regulators of their powers.
The nine justices sitting on the US Supreme Court are a 6-3 Republican-Democrat split, meaning that decisions on controversial cases – including the passing of laws and regulations – are still made essentially by the Republicans, despite a Democrat being in office.
