The U.S. Supreme Court has agreed to revisit the constitutionality of SEC in-house enforcement proceedings in a case with possible implications for other federal regulators.
On Friday, it added Jarkesy vs. SEC to its docket at the behest of the SEC, which has lost several cases in recent years that challenged its use of administrative law judges and whether those in-house proceedings violate the right to trial by jury.
The SEC petitioned the court to review a May 19, 2022, decision by the 5th U.S. Circuit Court of Appeals in New Orleans that said the SEC violated rights to a jury trial by finding that hedge fund manager George R. Jarksey Jr. had committed securities fraud.
According to the court filing, the SEC in 2011 began investigating two hedge funds with more than 100 investors and $24 million under management. The SEC eventually ruled that both Mr. Jarksey and fund adviser Patriot28 misrepresented who served as prime broker and auditor, the funds' parameters and safeguard, and the funds' assets in order to increase the fees they charged.
On a related case, the Supreme Court ruled April 14 that companies and people facing charges by the SEC or the Federal Trade Commission can challenge the agency's constitutional authority in U.S. District Court before the SEC settles the matter in-house. That decision could have major implications for the use of administrative law judges, legal experts said.