The US Supreme Court delivered a significant blow to the Securities and Exchange Commission (SEC) on Thursday, restricting its authority to impose civil penalties through internal adjudications.
In a pivotal 6-3 decision authored by Chief Justice John Roberts, the Court ruled that defendants facing SEC civil penalties are entitled to a trial by jury in federal court. This landmark ruling, which challenges the SEC's longstanding practice of using in-house judges for enforcement actions, has sparked heated dissent from liberal Justice Sonia Sotomayor, who accused the conservative majority of undermining Congress's regulatory authority.
According to NBC News, Justice Sotomayor criticized the decision as part of a broader trend by the conservative-leaning Court to diminish the power of federal agencies. She described the ruling as a "disconcerting trend" that reflects a "power grab" by the Court, citing recent decisions that also curtailed presidential authority over independent agencies and limited the jurisdiction of agency judges. Sotomayor's dissent, delivered orally from the bench, underscored her concern over what she termed the erosion of the "administrative state."
The case, which focused on whether SEC administrative judges violate defendants' rights to a jury trial, arose from challenges to the SEC's ability to enforce securities laws through internal proceedings rather than federal court. The New Republic reported that the majority opinion, joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett, overturned a provision of the Dodd-Frank Act allowing the SEC to seek civil penalties in administrative hearings. Chief Justice Roberts argued that such penalties constitute a public-rights matter that requires adjudication in federal courts, rejecting the SEC's contention that internal adjudications provide an efficient and effective means of enforcement.
In her dissenting opinion, Justice Sotomayor rebuffed the majority's interpretation, asserting that Congress has historically delegated public-rights matters to administrative agencies for initial adjudication. She criticized the Court for disregarding precedent and accused it of threatening the separation of powers by encroaching on Congress's legislative authority.
The decision has significant implications beyond the SEC, potentially impacting the enforcement capabilities of other federal agencies like the National Labor Relations Board, the Federal Trade Commission, and the Federal Communications Commission. Critics argue that requiring federal agencies to pursue civil penalties exclusively through federal courts could hinder their ability to swiftly and effectively enforce regulatory compliance.
