Don’t SEC yourself up for failure The Supreme Court case that could put the agency’s enforcement powers on the line
US Supreme Court case could undermine SEC's authority for internal enforcement
/cloudfront-us-east-2.images.arcpublishing.com/reuters/77HF5XA2VJMO7J3M4JGM22ERLY.jpg)
SEC’s Powers Under Scrutiny: Will The ‘In-House Judge’ System Be Plucked Out?
In a plot twist that would make even the most cunning fraudster nervous, the Supreme Court is about to witness a showdown over the U.S. Securities and Exchange Commission’s (SEC) powers to protect investors from financial misconduct. It seems like the federal agencies regulating financial markets are finding themselves under attack more often than not.
President Joe Biden’s administration is appealing a lower court’s ruling that restricts the SEC’s authority to regulate securities laws through its in-house tribunal system. And who’s the center of attention in this legal drama? Hedge fund manager George Jarkesy, who got slapped with fines and a ban from the industry for committing securities fraud, according to the SEC’s investigation.
Critics argue that the SEC’s in-house system gives it an unfair advantage. Picture this: it’s like playing a game where you get to pick the referee, who happens to be your best friend, instead of having neutral judges officiate. A bit fishy, right? Well, the New Orleans-based 5th U.S. Circuit Court of Appeals seems to agree. They ruled in favor of Jarkesy, stating that the SEC’s power to impose penalties through its in-house enforcement proceedings violates citizens’ right to a jury trial and encroaches on the power of the president and Congress.
But what does this mean for the securities industry? Legal experts warn that it could become a lot harder for the SEC to weed out bad actors in the future. And just when you thought the plot couldn’t get any juicier, there’s a separate challenge brewing against the industry-financed “self-regulatory organization” called FINRA (Financial Industry Regulatory Authority). It’s like a two-for-one deal in legal challenges!
Conservative and business groups are throwing their support behind the challenges against the SEC and FINRA. They argue that the federal “administrative state” has grown too powerful, meddling in areas like energy, the environment, climate policy, workplace safety, and financial regulation. But amidst all the legal drama, we can’t forget the underlying issue at hand: trust. Our financial system thrives on trust, and having a strong enforcement structure is crucial. After all, nobody wants to work with dishonest people.
- From Russian Crude to Indian Diesel Europe’s Shifting Fuel Fi...
- Job Seekers Beware The Top 5 Mistakes That Will Keep You Unemployed
- Paris might not be your remote work paradise, survey suggests
Now, the SEC, the superhero of investor protection, has been dealing with a series of legal attacks. Even the Supreme Court, with its newly formed conservative majority, seems to be questioning the extent of federal regulatory power. A few years ago, the Court criticized the SEC for the way it selected its in-house judges. And just a few months ago, they made it easier for the targets of agency actions to challenge them in federal court. It’s like the Court is slowly peeling away the layers of the SEC’s powers.
But wait, there’s more! The Supreme Court is also pondering the constitutionality of the Consumer Financial Protection Bureau’s funding structure. And they might even overrule a decades-old precedent that has been the shield of federal agencies defending their regulatory actions in court. It’s like the Court is shaking things up in the regulatory world.
Let’s not forget the origin story of this legal drama. In 2011, the SEC started investigating Jarkesy, the hedge fund manager. It turned out he had founded two hedge funds and had been playing fast and loose with the rules. The SEC slapped him with fines and ordered him to disgorge his ill-gotten gains. Oh, and they threw in a ban from the securities industry as well. But the 5th Circuit had other plans. They threw out the SEC’s decision, arguing that Jarkesy’s right to a jury trial had been violated and that the SEC had too much power in choosing where to bring cases.
As for the challenge against FINRA, it’s still working its way through the courts. Alpine Securities Corp, a Utah-based firm, is claiming that FINRA wields government power and should, therefore, be subject to constitutional provisions and presidential oversight. It’s like they want to pluck out the regulator’s feathers to see what lies beneath.
The business community seems to be growing increasingly frustrated with the SEC’s fines, feeling like the agency has become a bit too trigger-happy. They believe there needs to be more checks and balances on its discretion. And that’s where we’re at, folks: a legal battle over the powers of the SEC and FINRA, a quest for trust in our financial system, and a fight against the administrative state.
So, what’s your take on this legal showdown? Do you think the SEC needs to rethink its in-house judge system, or is it all a big misunderstanding? Let us know in the comments below!
Our Standards: The Thomson Reuters Trust Principles.
