WASHINGTON, Nov 29 (Reuters) – Conservative U.S. Supreme Court justices on Wednesday expressed doubt about the legality of certain proceedings conducted by the Securities and Exchange Commission (SEC) to enforce investor-protection laws. This case provides an opportunity for them to further diminish the power of federal agencies. The court, which has a 6-3 conservative majority, heard arguments in an appeal by President Joe Biden’s administration of a lower court’s ruling that declared the SEC’s tribunal proceedings before administrative judges appointed by the agency unconstitutional. These proceedings can result in financial penalties for violations. The conservative justices focused on a part of the 2022 ruling by the New Orleans-based 5th U.S. Circuit Court of Appeals that found the in-house proceedings to be in violation of the Seventh Amendment right to a jury trial. George Jarkesy, a hedge fund manager from Texas who was fined and barred from the industry by the SEC for securities fraud, challenged the legality of the agency’s system. His lawsuit was supported by conservative and business groups that have long criticized the regulatory reach of the federal ”administrative state” in various areas. The conservative justices expressed concern that SEC administrative proceedings do not provide a jury for certain charges, such as fraud, while similar cases in federal court would have one. Chief Justice John Roberts stated, “It does seem to me to be curious that – and unlike most constitutional rights – you have that right until the government decides that they don’t want you to have it. That doesn’t seem to me the way the Constitution normally works.” Justice Brett Kavanaugh questioned Justice Department lawyer Brian Fletcher, who was defending the SEC’s system, asking, “What sense does it make to say the full constitutional protections apply when a private party is suing you, but we’re going to discard those core constitutional, historic protections when government comes at you for the same money?” A ruling against the SEC by the court could potentially hinder or delay actions against misconduct by brokers, investment advisers, and others, and could also impede enforcement at other federal agencies. Fletcher warned of “wide repercussions” from such a decision, noting that two dozen agencies impose penalties in administrative proceedings. In recent years, the SEC has faced several legal challenges as the Supreme Court’s conservative justices have shown skepticism towards expansive federal regulatory power. The court previously criticized the SEC’s selection of in-house judges in 2018 and made it easier for targets of agency actions to challenge them in federal court in April. The court has also limited the power of other agencies, including the Environmental Protection Agency. Critics of the SEC argue that the agency has an unfair advantage…
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