The U.S. Supreme Court ruled 6-3 today that when the Securities and Exchange Commission seeks civil penalties against a defendant for securities fraud, the defendant is entitled to a jury trial under the Constitution. The case, SEC v. Jarkesy, concerned a petition brought by a hedge fund founder challenging the constitutionality of the commission’s in-house tribunals in adjudicating SEC penalties—a policy established by the Dodd-Frank Act. Among other things, the challenge argued that the tribunals violate the Seventh Amendment, which guarantees the right to a jury trial in civil affairs.
A majority of justices upheld a Fifth Circuit Court of Appeal ruling finding the SEC’s adjudication process unconstitutional. “A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” said Chief Justice John Roberts, writing for the majority. “Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge and jury in the hands of the executive branch.”
The American Bankers Association joined two other associations in an amicus brief last year urging the Supreme Court to rule that the SEC’s administrative enforcement proceedings were unconstitutional. Among other things, the associations said such a decision would promote fair enforcement of federal banking laws against banks and their directors, officers and employees.
“The specter of unfair enforcement proceedings at the banking agencies is a disincentive for talented professionals to serve as bank directors or otherwise work in the banking industry,” they said. “Affirming the Fifth Circuit’s decision will guarantee that Americans who make their living in regulated industries can rest assured that they will receive a fair shake if called to account by their regulators.”
