TheCorporateCounsel.net

On Friday, Dave blogged about Thursday’s SCOTUS decision in SEC v. Jarkesy, in which a 6-3 majority found that the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties for securities fraud. Dave shared some tidbits from a Politico article highlighting parts of Justice Sonia Sotomayor’s dissenting opinion, which called the decision “earthshattering.” In this post on the D&O Diary, Kevin LaCroix agrees, calling the Court’s decision a “blockbuster” and saying “the ramifications will ripple through the courts for many years to come.” Here’s why:

[T]he SEC has frequently used its authority to use [in-house proceedings to] pursue enforcement actions, where it has prevailed with much greater frequency than it has in civil actions in federal court. According to Justice Gorsuch, the SEC has won about 90% of its contested in-house proceedings compared to 69% of its cases in court. Without the ability to pursue claims in what has been for the SEC a more hospitable form, the agency at a minimum may not prevail as frequently, and perhaps might even pursue fewer enforcement actions. […]

The Court’s decision could also have important ramifications for other agencies’ abilities to pursue proceedings within their bailiwick in their own administrative courts. As Justice Sotomayor noted in her dissenting opinion, Congress has enacted more than 200 statutes authorizing dozens of agencies to impose civil penalties for violations of statutory obligations.

At least in statutory proceedings involving actions that are analogous to common law claims, the defendants in these actions potentially could argue that they are entitled to a civil court jury trial rather than an administrative proceeding and seek to have their claims dismissed. Potentially, the enforcement efforts of federal agencies generally could be significantly undermined, or at minimum substantially altered.

When it comes to pending administrative enforcement actions, this Gibson Dunn article says that the Commission “hasn’t pursued contested actions seeking penalties in its administrative forum. But long term, requiring the SEC to bring enforcement actions in federal court will afford defendants access to independent judges and juries, the rules of evidence and civil procedure, and other procedural protections.”

We’re posting this and other related memos in our “SEC Enforcement” Practice Area.

– Meredith Ervine