In a major victory for the securities defense bar, the U.S. Supreme Court ruled last month that the Securities and Exchange Commission cannot force defendants facing fraud charges into administrative proceedings before the SEC’s in-house judges. Though its contours will likely be litigated in the coming years, this ruling has effectively put a stop to the SEC’s use of its in-house courts for most litigated enforcement actions. This landmark change in how the SEC can enforce the securities laws is the direct result of years of concerted efforts by the defense bar. Without its home-court advantage, the SEC will have to litigate its cases in federal court—a process that is more complex and resource-intensive. But the SEC has been preparing for this eventuality for years.  

We each have followed this controversy avidly, from different perspectives. In 2014, days after Joel Cohen prevailed at trial against the SEC on behalf of hedge fund clients charged with insider trading, the SEC publicly declared its intention to litigate more matters in administrative proceedings. That announcement launched a decade of organized attempts by the defense bar to oppose this shift in strategy, as we discuss below. Meanwhile, during Ladan Stewart’s tenure at the SEC, as the industry got increasing traction in the courts for its constitutional challenges to administrative proceedings, the SEC started to build a larger and more formidable litigation unit (including creating its first ever specialized litigation team focusing on crypto and cyber matters, which Ladan led), and brought virtually all of its litigated enforcement actions in federal court. Thus, while the SEC v. Jarkesy decision marks a significant milestone for the securities industry, securities defendants litigating against the SEC should be prepared to face a sophisticated opponent that is increasingly able to effectively navigate federal court litigation.  

The ’Jarkesy’ Ruling