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High Court Decision Curbing SEC Authority Might Limit Workplace Agencies’ Power

U.S. Supreme Court

A U.S. Supreme Court decision on June 27 stripping the U.S. Securities and Exchange Commission’s (SEC’s) ability to recover civil penalties for fraud at administrative proceedings might lead to similar limitations on the enforcement authority of such workplace agencies as the National Labor Relations Board (NLRB) and the Occupational Safety and Health Administration (OSHA).

In its decision, the court said the Constitution requires the government to seek civil penalties for federal-securities fraud before a jury in federal court rather than before the agency.

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, enabling the SEC to seek civil penalties in federal court or impose them through its own in-house proceedings. However, the Supreme Court affirmed a lower court’s ruling that the agency’s in-house adjudication of matters violated the Seventh Amendment right to a jury trial.

“The right to trial by jury is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right has always been and should be scrutinized with the utmost care,” the court stated.

While the Supreme Court said in SEC v. Jarkesy that its decision was limited to civil penalty suits for fraud pursuant to a statute that is barely over a decade old, Justice Sonia Sotomayor wrote in a dissent, “That incredible assertion should fool no one. Today’s decision is a massive sea change.” She wrote that “dozens of agencies could be stripped of their power to enforce laws enacted by Congress.”

Sotomayor also wrote that “the constitutionality of hundreds of statutes may now be in peril” and added that “litigants seeking further dismantling of the ‘administrative state’ have reason to rejoice in their win today but those of us who cherish the rule of law have nothing to celebrate.”

She said that it is unclear how the Occupational Safety and Health Act as well as the National Labor Relations Act “would fit the Supreme Court’s view of the public-rights doctrine.”

In the majority opinion, Chief Justice John Roberts Jr. wrote that “thanks to the public-rights doctrine, the dissent insists, the Constitution imposes no limits on the government’s power to seek civil penalties outside the regular courts of law where there are no juries.” He added, “Why would a Constitution drawn up to protect against arbitrary government action make it easier for the government than for private parties to escape its dictates? The dissent offers no answers.”

We’ve gathered articles on the news from SHRM Online and other outlets.

Challenge of SEC’s Enforcement Authority

The challenge of the SEC’s enforcement authority was brought by George Jarkesy, who set up two hedge funds and used a company named Patriot28 LLC to advise on those investments. The SEC launched an investigation into Jarkesy and Patriot28’s investing activities in 2011, and the agency alleged in 2013 that they made several misrepresentations and overvalued the funds’ assets to increase fees they charged investors. After an internal tribunal found violations, the SEC ordered Jarkesy and Patriot28 to pay $300,000 in a civil penalty and turn over nearly $685,000 in profits. Jarkesy challenged the administrative ruling in court. An appeals court found that the Seventh Amendment had been violated.

(The Washington Post)

Other Agencies Might Be Challenged Next

The case threatened to upend the work of administrative law judges that work in federal agencies, including OSHA. The case also has been watched for its broader impact on labor disputes before the NLRB.

(CBS News and Forbes)


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