Supreme Court to Weigh In on SEC’s Powers – Will the “Administrative State” Come Out on Top?

US Supreme Court Decides on Legality of SEC's In-House Enforcement

US Supreme Court reviewing legality of SEC internal enforcement.

With the fate of federal agencies hanging in the balance, the U.S. Supreme Court is about to tackle the thorny issue of the Securities and Exchange Commission’s (SEC) in-house proceedings. Brace yourself for a showdown like no other!

Soon, the nine justices will be drawn into the ring to hear arguments in a case that could unravel the power of federal agencies. This is an appeal by President Joe Biden’s administration to challenge a lower court’s decision that limited the SEC’s ability to enforce investor-protection laws through its in-house tribunal system.

Hedge fund manager George Jarkesy is at the center of this legal battle. The SEC fined Jarkesy and banned him from the industry for committing securities fraud. But Jarkesy isn’t going down without a fight. A ruling in his favor could be a game-changer, potentially reducing or delaying action against misconduct by brokers, investment advisors, and other wrongdoers.

Critics of the SEC have long argued that its in-house tribunal system grants the commission an unfair advantage. Instead of facing a jury in federal court, the SEC has the upper hand in “administrative proceedings.” Imagine going head-to-head with a heavyweight champion who also happens to be the referee, all while you’re blindly swinging in the dark. It’s a David vs. Goliath situation that some say needs to be corrected.

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But hold on, it doesn’t end there. Over the years, the SEC has been under attack from all sides. The Supreme Court, staunchly conservative with its 6-3 majority, has consistently expressed skepticism towards expansive federal regulatory power. In 2018, the court took issue with how the SEC selected its in-house judges. Then, in a move that shook the regulatory landscape, the court made it easier for those on the receiving end of SEC actions to challenge them in federal court. It’s like a referee calling a timeout to give the underdog a fighting chance.

Jarkesy’s battle cry has garnered support from various conservative and business groups concerned about the overreach of the “administrative state.” From energy to the environment, climate policy to workplace safety, and even financial regulation, the federal regulatory net is seen by some as a tangled mess. And Jarkesy is determined to untangle it.

Let’s not forget, though, that this is just one case in a sea of litigation. The Supreme Court is not done yet. They’re also set to rule on the constitutionality of the U.S. Consumer Financial Protection Bureau’s funding structure, which could have far-reaching consequences. It’s a legal storm brewing on the horizon.

So, what’s at stake here? Will federal agencies be stripped of their powers, or will the “administrative state” come out on top? The Supreme Court’s ruling, expected by the end of June, will define the future of regulatory enforcement.

Hold on tight, folks! The gloves are off, and the Supreme Court is in session.

Join the discussion: Do you think the SEC’s in-house tribunal system gives them an unfair advantage? Should misconduct cases be tried in federal court instead? Share your thoughts below!

Disclaimer: The information provided in this article is for educational purposes only and does not constitute financial or legal advice. Always consult with a qualified professional for personalized guidance.

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