Richard Hong Quoted on Consequences of Supreme Court’s Ruling in SEC v. Jarkesy

Partner Richard Hong has been quoted widely in the press regarding the Supreme Court’s June 27, 2024 ruling in SEC v. Jarkesy, which has restricted the ability of the SEC to enforce anti-fraud laws and impose penalties on financial wrongdoers. In a 6-3 decision, Chief Justice John Roberts struck down the ability of the agency to hold in-house administrative proceedings instead of pursuing a trial in federal court, a ruling that Justice Sonia Sotomayor accused of being “a power grab” by the conservative majority.

In an NPR article entitled “Supreme Court Limits SEC's Powers to Impose Fines,” Richard, who spent 17 years as an SEC trial attorney, stated, “There will be a permanent change in how the SEC will be using its administrative courts.”

In Westlaw Today, Richard noted that the SEC will continue to bring Rule 102(e) actions, as well as industry bars and stop order proceedings. “But anything that involves a fraud claim seeking penalties is gone. They have to be filed in federal court.”

He continued, “To the extent that the SEC had any hopes of bringing other fraud-type case to litigate in its administrative courts, it will not be able to bring any penalty claim. I don't think the SEC will expend a lot of resources for non-penalty fraud cases. Also, to the extent that there are prior cases on appeal where the ALJ decided the penalties and any pending cases (some may have been stayed), the SEC has to figure out whether there are some retroactivity issues to be resolved.”