The Securities and Exchange Commission (SEC) has been accused of violating defendants’ rights in a recent ruling from a federal appeals court. The problem comes with the fact that an in-house judge was used in these cases.
When the SEC performed court cases involving enforcement actions, an in-house judge was often used. However, this could be a constitutional violation of the rights of the defendant, since they did not go before a jury in court, and this new ruling means that the SEC is going to have to change the way they prosecute these actions.
The case involved a hedgefund
The specific case in question involved a hedge fund manager who was being prosecuted for a civil fraud case. An in-house judge was used, which the US Court of Appeals for the Fifth Circuit now says was a violation of their Seventh Amendment rights.
This is certainly not the only situation in which this has happened, as the use of in-house judges was common practice before this ruling.
Under the 7th Amendment, defendants are supposed to be given the right to a jury trial. Instead of going to federal court, the SEC often allowed administrative judges to simply make rulings. This will no longer be allowed within the jurisdiction of this specific federal court, which covers Mississippi, Louisiana and Texas.
This means that the case is going to need to be refiled and it will have to go to federal court. Even if the court eventually sides with the administrative judge’s decision, this also changes how these cases will need to be tried in the future. The SEC is currently assessing the situation and determining what next steps they’re going to have to take to ensure future compliance.
Issues like this are why it’s so important for everyone involved in these cases to understand their legal rights.