Supreme Court Ruling Ensures Juries in Many SEC Cases: SEC Roundup
By Nick Morgan
By Tom Zaccaro
Welcome to SEC Roundup, a bimonthly video series by former Securities and Exchange Commission senior trial counsels Nick Morgan and Tom Zaccaro, founders of the nonprofit advocacy group Investor Choice Advocates Network.
In this episode, the Supreme Court's June 27 holding in SEC v. Jarkesy ensures juries for defendants in many SEC proceedings, but hear from two notable people whose jury verdicts in their favor and against the SEC started the regulator's movement away from federal courts.
After the SEC lost federal jury cases against Nelson Obus and Manouch Moshayedi in 2014, the then-director of the SEC said the agency would expand its use of in-house administrative proceedings because merely threatening to do so often caused people to settle.
One such in-house proceeding was against George Jarkesy, a case that would find its way to the Supreme Court over a decade later.
In 2007 and 2009, Jarkesy created two small hedge funds totaling $24 million that invested in bridge loans to startup companies, equity investments principally in microcap companies, and life settlement policies.
After holding an evidentiary hearing, the SEC ALJ held Jarkesy and his advisory firm, Patriot28, committed securities fraud by inflating the value of fund assets so he could earn higher management fees.
In 2020, seven years after initiating the enforcement action, the commission concluded that based on existing evidence from the ALJ's proceedings, Jarkesy and Patriot28 were liable, and the commission imposed $300,000 in civil penalties and $685,000 in disgorgement.
The 6–3 Supreme Court opinion, written by the chief justice, holds that the Seventh Amendment entitles defendants to a jury trial when the SEC seeks civil penalties for securities fraud. As a result, the agency may no longer pursue such claims through in-house enforcement proceedings.
See the video for the discussion about the recent Supreme Court ruling.
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