SECURITIES CORNER

SUPREME COURT RULES SEC CIVIL FRAUD CASES CAN ONLY BE ADJUDICATED IN FEDERAL COURT

SEC v. Jarkesy, 2024 U.S. LEXIS 2847 (June 27, 2024).

The Supreme Court recently held that the in-house proceedings the SEC has used in some civil fraud complaints violate the Constitutional right to a jury trial in civil lawsuits. Previously, the SEC had the choice of bringing an enforcement action in one of two forums: i) either adjudicating the matter itself using an administrative law judge or ii) filing suit in federal court where a jury trial is available. Prior to the passage of Dodd Frank, the SEC could only seek civil penalties in federal court. However, after Dodd Frank, the SEC could choose to seek such penalties in either forum. In the underlying issue before the Supreme Court, the SEC had initiated an enforcement action against a hedge fund and its manager seeking civil penalties for alleged securities fraud and proceeded in-house before one of its administrative law judges. Eventually, a circuit court judge rejected the administrative law judge’s award of penalties, which the SEC appealed.

 

Ultimately, the Court found the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties against them for securities fraud. The SEC’s antifraud provisions replicate common law fraud. It was well established that common law claims must be heard by a jury. This decision could have far-reaching effects on other regulatory bodies that use a similar structure, as this decision suggests alternative forums for bringing enforcement actions outside of federal court are inappropriate under Constitutional law.  

JUNE 2024 NOTEWORTHY ENFORCEMENT ACTIONS FILED

 Director/Officer

 Role

 Company

 Ilit Raz

 CEO & Founder

 Joonko

 Joshua Goltry

 CIO & Founder

 JAG Capital Advisors LLC

 Roger Johnson

 Dennis Atkins

 CEO

 CFO

 Western Sierra Resource Corporation

 John Brda and Georgios   Palikaras 

 

 CEOs

 

 Meta Materials Inc.

 Director/Officer

 Role

 Company

 Ilit Raz

 CEO & Founder

 Joonko

 Joshua Goltry

 CIO & Founder

 JAG Capital Advisors LLC

 Roger Johnson

 Dennis Atkins

 CEO

 CFO

 Western Sierra Resource Corporation

 John Brda and Georgios Palikaras

 CEOs

 Meta Materials Inc.

JUNE 2024 NOTEWORTHY SETTLEMENTS AND JUDGMENTS

 Amount

 Director/Officer

 Role

 Company

 $923,740

 Andreas Bechtolsheim

 Founder 

 Arista Networks, Inc.

 $7,734,286.79

 Zhou Min Ni

 CEO & Chairman

 HF Foods Group, Inc.

 $14,095,197.10

 Christopher Bentley

 CEO

 Bellatorum Resources, LLC

 $3,607,391.63  Amit Bhardwaj  CISO

 Lumentum Holdings Inc.

 $555,000  Karen Rosenberger  Former CFO  Synchronoss Technologies, Inc.

 Amount

 Director/Officer

 Role

 Company

 $923,740

 Andreas Bechtolsheim

 Founder

 Arista Networks, Inc.

 $7,734,286.79

 Zhou Min Ni

 CEO & Chairman

 HF Foods Group, Inc.

 $14,095,197.10

 Christopher Bentley

 CEO

 Bellatorum Resources, LLC

 $3,607,391.63

 Amit Bhardwaj

 CISO

 Lumentum Holdings Inc.

 $555,000

 Karen Rosenberger

 Former CFO

 Synchronoss Technologies, Inc.