Supreme Court Rulings Set to Influence Future SEC Actions Against Crypto Firms
Summary:
Over the past week, the U.S. Supreme Court has issued two decisions that could significantly impact the U.S. Securities and Exchange Commission's (SEC) enforcement actions, including those against crypto firms. In SEC v. Jarksey, the Court ruled that in cases of securities fraud, defendants are entitled to a jury trial. The Court also overturned a 1984 ruling that upheld agency interpretation of the law, which could require lower courts to exercise independent judgment regarding agency actions. Legal experts suggest this could lead to a legal framework more favorable to crypto companies and potentially overburden the judicial system.
Over the past week, the United States Supreme Court (SCOTUS) has issued two verdicts that may significantly impact the methodology of the U.S. Securities and Exchange Commission (SEC) in conducting enforcement actions, including those targeted at cryptocurrency companies. On June 27, the Court ruled in a 6-3 majority in SEC v. Jarksey, establishing that in instances of SEC civil litigation regarding securities fraud, defendants are owed a trial by jury, rather than a unilateral decision from an administrative law judge. The justices leaning conservative in the Court indicated an equivalency between SEC civil cases involving securities fraud and criminal cases related to fraud through their reliance on “common law fraud principles” in their interpretation of federal securities law.
Within a day of the SEC v. Jarksey ruling, SCOTUS issued an additional opinion on June 28—Loper Bright Enterprises v. Raimondo—that effectively negated a precedent set in 1984 that upheld the Chevron deference doctrine. Although the SEC wasn't explicitly mentioned, the opinion produced by the Court would require lower courts to “exercise their independent judgment" in assessing whether an agency is operating within its legally defined powers, rather than simply okaying the agency's personal interpretation of the law.
According to Sheila Warren, the CEO of the Crypto Council for Innovation, these developments may significantly affect the crypto industry. Expanding on this point, she noted that the authority and influence of regulators, like the SEC, may be up for debate if courts hold the power to intervene. Following this, Warren emphasized that the Supreme Court's ruling places definite boundaries on the regulatory overreach which has previously stifled innovation in the U.S. crypto sector.
When it came time for dissention, Justice Sonia Sotomayor characterized the majority's perspective in SEC v. Jarksey as an “usurpation” of policymaking powers usually reserved for the U.S. Congress. Meanwhile, Justice Elena Kagan was left dissenting in the Loper decision, asserting that a tendency has emerged within the majority to reverse firmly established law and revamp crucial principles of administrative law.
The cascade of these verdicts could potentially result in an enfeebled ability of the SEC to act against crypto firms, likely leading to an overburdened judicial system. Contributing his insights, Joseph Lynyak—a partner at the global law firm Dorsey & Whitney—stated that with the SCOTUS overruling the Chevron doctrine, courts might be overrun with private entities attempting to initiate litigation against and scrutinize agency interpretations, thereby causing contradictory rulings from lower courts.
On June 28, Maxine Waters—Representative for the House Financial Services Committee—commented on the SCOTUS verdicts by acknowledging a change in precedent that might work in favor of large corporations at the expense of ordinary citizens by substantially easing their avoidance of civil penalties.
In the windup of its term, the conservative-led Supreme Court turned out a number of definitive opinions that could shape the future for the SEC and the U.S. Presidency alike. On July 1, in a 6-3 verdict, the justices conceded that former president Donald Trump holds potential immunity from litigation for all actions completed during his presidential term — a precedent that may present serious implications for Trump's 2024 re-election campaign. Amidst all these rulings, the SEC initiated an enforcement action against Consensys, the parent company of MetaMask, on allegations of operating as an unlicensed broker and engaging in the unregistered offer and sale of securities via MetaMask Swaps.
Related: Godzilla vs. Kong: SEC's legal confrontation with crypto sector intensifies.
Published At
7/1/2024 11:00:58 PM
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