You should not commit securities fraud.
With that out of the way, if you DID want to commit some light securities fraud, the Supreme Court has good news for you! In a 6-3 opinion, the conservative majority ruled that when the SEC seeks civil penalties against someone participating in the securities industry, the agency must go through a whole jury trial as opposed to running the matter by an in-house administrative law judge.
In a hermetically sealed ivory tower, all the SEC needs to do is take the “easy” step of bringing all its cases in federal court. Here in the real world, the SEC is just going to stop enforcing a bunch of securities fraud violations. The odds are close to nil that Congress responds to today’s decision by radically inflating the SEC’s budget so it can bog itself down in protracted Article III litigation.
This case poses a straightforward question: whether the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties against him for securities fraud. Our analysis of this question follows the approach set forth in Granfinanciera and Tull v. United States, 481 U. S. 412 (1987). The threshold issue is whether this action implicates the Seventh Amendment. It does. The SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury.
The SEC’s antifraud provisions might crib from common law fraud, but that does not, in fact, transform them into common law fraud claims. If the SEC decided a finance bro committed common law fraud, they could always go before a jury and make that case. But if the SEC decides someone is a threat to the sanctity of the market and wants to impose sanctions on them as a member of the industry, it is not necessarily a common law fraud claim.
There is no God-given right to participate in the securities market! If someone chooses to jump into that market, they choose to live by the SEC’s regulations. The SEC should be able to regulate its industry members as industry members.
To put this in terms that even Brett Kavanaugh could understand, this decision is like ruling your Fantasy Football league can’t kick you out for refusing to chip in for beer. Just because the league “mirrors some of the procedures of a court” does not require the commissioner dragging you before a fricking jury.
As the dissent puts it:
Today, for the very first time, this Court holds that Congress violated the Constitution by authorizing a federal agency to adjudicate a statutory right that inheres in the Government in its sovereign capacity, also known as a public right. According to the majority, the Constitution requires the Government to seek civil penalties for federalsecurities fraud before a jury in federal court. The nature of the remedy is, in the majority’s view, virtually dispositive. That is plainly wrong. This Court has held, without exception, that Congress has broad latitude to create statutory obligations that entitle the Government to civil penalties, and then to assign their enforcement outside the regular courts of law where there are no juries.
And it’s not just the SEC. More than two dozen agencies enforce their regulations this way and — presumably — will not be able to after this. Indeed, as Sotomayor points out, some of these agencies are ONLY allowed to pursue remedies through their internal judges, meaning this statute simply voids their ability to effectively regulate anything at all.
For all the majority’s talk about administrative law judges being “the very opposite of the separation of powers,” the dissent points out that this whole opinion is an affront to the separation of powers:
Make no mistake: Today’s decision is a power grab. Once again, “the majority arrogates Congress’s policymaking role to itself.” It prescribes artificial constraints on what modern-day adaptable governance must look like. In telling Congress that it cannot entrust certain public-rights matters to the Executive because it must bring them first into the Judiciary’s province, the majority oversteps its role and encroaches on Congress’s constitutional authority…. Judicial aggrandizement is as pernicious to the separation of powers as any aggrandizing action from eitherof the political branches.
The best case scenario for securities enforcement is that defendants will stick with ALJs rather than turn their fate over to total scatterbrains like Aileen Cannon.
Maybe. But if the SEC doesn’t have the resources to send most cases to trial, there’s not much incentivizing defense lawyers to waive rights. Demand a jury trial and wait for the Commission to check its own wallet and blink! The defendant can opt out at the end if they want, but this overlooks the number of cases that won’t be pursued at all based on the real possibility that a defendant won’t waive those rights. I mean… why even cooperate in an investigation? In my experience, no one loves a dead-end fishing expedition more than the SEC but sometimes those do accidentally root out violations. If the agency lacks a credible enforcement threat, lawyers can just tell them to pound sand from the get go.
And the SEC is one of the better funded agencies in this proverbial boat compared to, say, the literal boats at the Federal Maritime Commission. It’s not like boats crash into things these days!
Just a gut punch to regulatory enforcement. But a pretty good one for small-time fraudsters so… there’s that.
(Opinion on the next page…)
