The U.S. Supreme Court curbed the Securities and Exchange Commission's ability to press complaints before in-house judges, saying defendants have a constitutional right to make their case to a federal jury when the agency is seeking financial penalties.
The 6-3 decision could reduce the commission's leverage to extract high-dollar settlements. It deals a blow to an administrative system the SEC once used to adjudicate more than 100 cases a year before scaling back amid legal challenges.
The ruling could ripple across the government, potentially affecting the Federal Trade Commission, Agriculture Department and Environmental Protection Agency.
A Justice Department lawyer said during arguments that more than two dozen agencies now impose penalties through administrative proceedings and that only some of those bodies have the option to go to federal court instead.
Dissenting Justice Sonia Sotomayor said the ruling will unleash "chaos" across the government.
The dispute is part of a Supreme Court term likely to have broad implications for federal regulators.
The justices are also considering whether to overturn a precedent that gives agencies leeway when they interpret ambiguous congressional commands. The court's conservative majority has been broadly skeptical of what it views as overreach by regulatory agencies.
The majority said that the SEC's "antifraud provisions replicate common law fraud" and that it was "well established" that those types of claims should be heard by a jury.
"A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator," Chief Justice John Roberts wrote for the majority.
"Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands," he said.
Roberts was joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett.
Sotomayor listed 19 other agencies that also impose civil penalties through administrative proceedings. She said several agencies, including the Occupational Safety and Health Review Commission and the Federal Energy Regulatory Commission, currently don't have the legal authority to go to court to seek civil penalties.
"For those and countless other agencies, all the majority can say is tough luck; get a new statute from Congress," Sotomayor wrote in an opinion joined by Justices Elena Kagan and Ketanji Brown Jackson.
The latest ruling is a victory for George Jarkesy, a former hedge fund manager and conservative radio host. The SEC accused Jarkesy in 2013 of misleading investors about who served as his funds' prime broker and auditor and about their investment strategies and holdings.
