Supreme Court curbs SEC powers to enforce securities laws

WASHINGTON — Liberal Justice Sonia Sotomayor accused the Supreme Court’s conservative majority of seizing power for itself as it curbs the authority of federal agencies in a series of rulings, including one Thursday that went against the Securities and Exchange Commission.

She said in a dissenting opinion that the ruling, which limits the SEC’s ability to enforce securities laws, was part of a “disconcerting trend” in which the court has pared back the power of regulators.

She cited other recent decisions in which the court made it easier for presidents to fire the heads of independent agencies and limited the authority of in-house judges.

“Make no mistake, today’s decision is a power grab,” Sotomayor wrote. She took the additional step of reading a summary of her dissent from the bench, something justices do when they are particularly upset with a decision.

In Thursday’s decision, the court ruled 6-3 that the adjudication of cases by the SEC’s in-house judges violates the right to trial by jury. The ruling could also have implications for other agencies that use similar procedures.

The case is one of several the court heard in its current term involving conservative and business-led attacks on the power of federal agencies. The court’s 6-3 conservative majority is often sympathetic to such arguments.

Sotomayor referenced the ongoing assault on what has been dubbed “the administrative state” by critics.

“Litigants seeking further dismantling of the ‘administrative state’ have reason to rejoice in their win today, but those us us who cherish the rule of law have nothing to celebrate,” she wrote.

The challenge zeroed in on how the SEC enforces securities laws, including those prohibiting insider trading. The SEC has long used in-house proceedings presided over by administrative law judges. The agency can also sue in federal court. In both sets of proceedings, it can seek financial penalties.

Those subject to the in-house adjudication have complained, saying the process violates their rights and gives the SEC too much power by essentially creating a home-court advantage.

In the majority opinion, Chief Justice John Roberts fired back at Sotomayor, saying that she “would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the executive branch.”

Such an outcome is “the very opposite” of what the Constitution’s separation of powers principle requires, he added.

Hedge fund manager George Jarkesy brought the legal challenge after he faced SEC claims that he violated securities laws by making misstatements and omitting relevant information in communications with investors while he was overseeing two hedge funds.

Jarkesy and his firm were ordered to pay a $300,000 penalty, and he was barred from certain roles in the securities industry after being subjected to an in-house proceeding in 2014. The firm was also ordered to return nearly $685,000 in what the SEC considered “illicit gains.”

Jarkesy’s legal crusade had the backing of billionaires Elon Musk and Mark Cuban.

A three-judge panel of the New Orleans-based 5th Circuit U.S. Court of Appeals ruled against the agency, prompting the SEC to ask the Supreme Court to intervene.