Wall Street’s top regulator is already under fire in the courts from industry and conservatives. Now, the SEC is feeling pressure at the Supreme Court. But the fallout from a potentially adverse decision on a key mechanism the agency has long used to adjudicate cases could hit corporate watchdogs across Washington. Justices are expected to rule as early as today on a challenge to the SEC’s in-house courts from former hedge fund manager and conservative commentator George Jarkesy, who more than a decade ago was ensnared by the agency’s enforcement arm on fraud charges. The SEC’s tribunals — headed by agency-appointed judges with no juries — have historically represented a faster and cheaper means for resolving certain enforcement cases. The judges also tend to be well-versed in the wonky details of securities law. Over the last decade, however, the courts have become the subject of a sweeping campaign of attack backed by conservative legal activists, the business lobby and billionaires like Mark Cuban and Elon Musk. These critics claim the proceedings are stacked in the SEC’s favor and should be handled in the federal courts. The case has gotten relatively little attention this Supreme Court term compared to other looming decisions that are due to drop this week (or possibly next — to the annoyance of court watchers with July 4 vacation plans). Top of mind for many on Wall Street and in Washington’s financial circles is the justices’ separate ruling to come on the fate of a 40-year-old legal doctrine that has provided federal agencies deference in the courts. Yet, as your host recently reported with Josh Sisco and Josh Gerstein, Securities and Exchange Commission v. Jarkesy represents another critical cog in the assault on the so-called administrative state. It’s a case that could affect not just Gary Gensler’s SEC but also the Federal Trade Commission, the National Labor Relations Board, the Consumer Financial Protection Bureau and other agencies that use similar in-house court structures. Among the issues before the justices is whether the SEC’s administrative law courts violate the constitutional right to a jury trial, as Jarkesy’s attorneys allege. The government says that right doesn’t apply to the SEC’s tribunals, but members of the Supreme Court, including Chief Justice John Roberts, expressed skepticism about that claim during oral arguments in November. The SEC — which has recently seen its rules on hedge funds and stock buybacks struck down by federal judges — may already have been preparing itself for another potential loss in the high court. In recent years, as the tribunals have faced growing scrutiny, the agency has significantly pulled back on bringing contentious cases to its in-house courts. But other agencies haven’t, and a ruling against the SEC “would open up a big can of worms with a lot more litigation to come,” said Todd Phillips, a long-time investor advocate who now teaches at Georgia State University. “If they say that someone accused of securities fraud has to have the option of going to a jury trial, the question would be: What else does?” Phillips told MM. As always, how the court crafts the opinion will prove critical. For many following the case, the paramount concern is that a negative decision could jam up the relatively uncontroversial proceedings of internal courts at agencies like the Social Security Administration, whose roughly 1,200 judges routinely process claims. Doing so could wind up flooding the federal courts with a rush of new cases. What’s more, Jarkesy may not be the last time the Supreme Court opines on agencies’ administrative courts. While the justices are focused now on the jury-trial issue, the court has also been asked to rule on whether the SEC’s judges are too insulated from removal by the president. It’s unclear whether the court will take up that issue, said J. Robert Brown Jr., a former SEC attorney who now teaches at the University of Denver. Until it does, Brown warns: “We could find ourselves with the uncertainty still there.” IT’S THURSDAY — And debate night in America. We’ll be watching for any news on the economic, financial, housing and (maybe?) crypto fronts, so don’t be a stranger. Drop me a line at dharty@politico.com or on Signal at 708.548.9256. And as always, send tips and suggestions to Sam at ssutton@politico.com or on Signal at 925.216.7576.
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