On June 27, 2024, the U.S. Supreme Court issued an opinion finding the U.S. Securities and Exchange Commission’s (“SEC”) long-standing use of in-house administrative courts, instead of U.S. District Courts, when accusing a defendant of fraud, unconstitutional.
The 6-3 decision held that when a defendant is accused of fraud by the SEC and subject to civil monetary fines and penalties, the accused has a constitutional right to a jury trial in federal court.
Prior to this opinion, the SEC had a valuable enforcement tool that provided it with an option of choosing between an internally favorable court and administrative law judge with limited appellate rights or pursuing fraud claims in federal courts with all of the attendant rights and privileges guaranteed by the U.S. Constitution.
“For decades, SEC defense attorneys have raised the question of the in-house court’s constitutionality. Until now, many defendants faced with fraud charges and potential ruin have had to make tough decisions, sometimes settling without a fight due to the risk and uncertainty of proceeding before an SEC in-house judge. Today’s decision will have far-reaching impact in SEC enforcement litigation, and likely further impact on other regulatory agencies and their internal processes,” said Joseph Sacher, a GRSM Partner who has devoted a substantial portion of his legal career to defending SEC investigations from inception through trial and appeals.
If you have any questions regarding this development or any SEC-related enforcement issues, please contact Joseph Sacher (jsacher@grsm.com) or a member of the Securities Litigation or Government Regulatory & Administrative Law practice groups. For any SEC-related regulatory and business transactions questions, please contact Lawrence Cohen (lcohen@grsm.com) or a member of the Business Transactions practice group.