Supreme Court Affirms Right to Jury Trial in SEC Civil Penalty Proceedings

If someone accuses you of stealing money from them, there are a couple of ways the situation could play out. The accuser could file a civil lawsuit against you, seeking damages for the money you owe them. Alternatively, a Florida prosecutor could charge you with a criminal offense, such as theft by conversion. In either scenario, you would have a right to defend yourself in a trial by jury.

Indeed, while the Sixth Amendment guarantees your right to a jury trial in any criminal proceeding, the Seventh Amendment similarly protects that right in civil cases heard under federal law. Specifically, the Seventh Amendment applies to “suits at common law, where the value in controversy shall exceed twenty dollars.”

Securities Fraud a “Common Law” Matter Subject to Seventh Amendment

The United States Supreme Court recently held that the Seventh Amendment applies to cases where the Securities and Exchange Commission (SEC) seeks to impose civil penalties–i.e., non-criminal fines–against persons charged with securities fraud. Previously, the SEC often relied on internal administrative proceedings to issue such penalties. And while there are circumstances where such administrative proceedings can be justified under the Constitution, the Supreme Court said this was not one of them.

In 2013, the SEC charged the defendants in this case, SEC v. Jarkesy, with securities fraud. Under the various federal statutes governing securities regulation, the SEC can bring these kinds of enforcement actions by either (a) filing a civil lawsuit against the defendant in federal court, or (b) initiating an in-house administrative proceeding. The SEC elected for the latter.

Under this in-house process, the SEC itself serves as the finder of fact, in effect acting as prosecutor, judge, and jury. Typically, the SEC delegates the fact-finder role to an administrative law judge (ALJ). The ALJ’s decision is subject to review by the SEC itself, however, and only after the Commission issues a final decision can the respondent seek judicial review in the courts.

As the Supreme Court explained in its decision, this type of administrative hearing is acceptable when dealing with a matter of “public rights.” For example, the IRS can use an administrative process to determine whether a person owes income tax, as revenue collection is a squarely a question of public rights.

In this case, however, the SEC’s case against the defendants was based on their alleged violation of the “anti-fraud” provisions of securities laws. This is the “same basic conduct as common law fraud,” the Court observed. As such, the SEC’s efforts to impose a civil penalty on the defendant amounted to a suit under the common law. The Seventh Amendment therefore applied, and the defendants had a right to present their case to a jury.

Contact Joshi Law Firm Today

If you have been charged with securities fraud or any other federal offense involving financial abuse, it is important that you work with an experienced Orlando federal crime lawyer who can represent your interests in court. Call the Joshi Law Firm, PA, today at 844-GO-JOSHI or contact us online to schedule a free initial consultation.

Source:

supremecourt.gov/opinions/23pdf/22-859_1924.pdf