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Two Supreme Court Rulings Limit Power of Regulatory Agencies, Including SEC

Ruth Singleton
Published Date:
Jul 1, 2024


Two rulings issued last week by the U.S. Supreme Court will limit the power of regulatory agencies to enforce and interpret financial and other statutes, the New York Times and other news sources reported. In one case, involving the Securities and Exchange Commission (SEC), the high court ruled that administrative tribunals can no longer hear enforcement actions; such actions must be brought in federal court. In the other, it held that federal courts will no longer be obligated to defer to reasonable interpretations of law by federal agencies under what has come to be known as the Chevron doctrine.

On June 27, the high court rejected the use by the SEC of administrative law judges to try the securities fraud enforcement actions that it brings. In a 6-3 ruling written by Chief Justice John Roberts, the court said that the practice violated the Seventh Amendment right to jury trial, meaning that such actions must be brought in federal court.

The caseSecurities and Exchange Commission v. Jarkesy, involved charges against hedge fund manager George Jarkesy of misleading investors. The SEC brought a civil enforcement action against him before an administrative law judge, who ruled against Jarkesy and ordered him to pay a civil penalty of $300,000 and disgorge $685,000 in illicit gains. Jarkesy appealed to the Fifth Circuit Court of Appeals, which ruled in his favor, finding that he had a right to face a jury trial. The Supreme Court upheld that ruling.

 “A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Roberts wrote.

Justice Sonia Sotomayor wrote a dissent, joined by Justices Elena Kagan and Ketanji Brown Jackson, in which she accused the majority of upending “longstanding precedent” to cut back on the authority of administrative agencies. In her dissent, Sotomayor accused the majority of ignoring the court’s precedents to reach a conclusion that was “plainly wrong.” She said Congress had the constitutional authority to decide that civil proceedings to protect the rights of the public generally—as opposed to private lawsuits—could be decided by administrative tribunals.

The Times quoted Devin Watkins, an attorney for the Competitive Enterprise Institute, a think tank that opposes regulation, who welcomed the ruling. He said it “will ensure that 12 everyday Americans, not government bureaucrats, will decide whether a defendant’s property should be taken,” he said in a statement.

But Robert Weissman, president of Public Citizen, a consumer advocacy group, warned aboutthe implications for the financial system, given that it would hamper the SEC’s ability to regulate.

“Today’s decision is another step in the long-term corporate project of neutering federal agencies’ ability to protect the public from fraudsters, rip-offs, dangerous products, carbon polluters, and more,” he said in a statement, the Times reported.

On June 28, the court overturned its own 1984. precedent of Chevron v. Natural Resources Defense Council, which held that courts must defer to the reasonable interpretations by federal agencies of ambiguous statutes.

“Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority," wrote Roberts for the 6-3 majority in two related cases, Loper Bright Enterprises . v. Raimondo and Relentless v. Department of Commerce. “Chevron is overruled."

There have been 70 Supreme Court decisions relying on Chevron, along with 17,000 in the lower courts.

The decision will likely result in numerous challenges to the actions of an array of federal agencies, including those regulating the environment, financial markets, health care and consumer safety, the Times reported.

Roberts wrote that Chevron must be overruled because it “has proved to be fundamentally misguided” and is unworkable. “All that remains of Chevron is a decaying husk with bold pretensions, “ he wrote

But Justice Elena Kagan responded in her dissent that Chevron was vibrant and valuable. “It has become part of the warp and woof of modern government,” she wrote, “supporting regulatory efforts of all kinds—to name a few, keeping air and water clean, food and drugs safe, and financial markets honest.” She was joined in her dissent by Sotomayor and Jackson.

The Times noted that the conservative legal movement and business groups have criticized the Chevron ruling, in part because they oppose a great deal of government regulation, and in part because they believe that agencies should have only the power that Congress has explicitly given them.

Supporters of the Chevron doctrine argue that it allows specialized agencies to fill gaps in ambiguous statutes to establish uniform rules in their areas of expertise, a practice they say was contemplated by Congress.

Kagan articulated that perspective. “Some interpretive issues arising in the regulatory context involve scientific or technical subject matter,” she wrote. “Agencies have expertise in those areas; courts do not. Some demand a detailed understanding of complex and interdependent regulatory programs. Agencies know those programs inside-out; again, courts do not.”

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