Jarkesy: Supreme Court Holds Defendant Entitled to Jury Trial When SEC Seeks Civil Penalties

Supreme Court Strikes Down SEC’s Use of Administrative Law Judges in Civil Penalty Actions

The United States Supreme Court has held that that, in light of the Seventh Amendment’s right to a jury trial, the SEC must pursue enforcement actions seeking civil penalties in a jury trial proceeding in federal court rather than in an action before an administrative law judge. The Court’s 6-3 ruling could have significant consequences for the many SEC enforcement actions now pending in the agency’s administrative tribunals, as well as for the agency’s pursuit of future enforcement actions. The Court’s ruling could also have important implications for other federal agencies’ use of administrative tribunals as well….

Jarkesy

I continue to think that there is a live possibility that, in the not too distant future, the Supreme Court will rule that the SEC has no power to make rules, and all of its rules are invalid. But not today. The court ruled that Jarkesy had a constitutional right to a jury trial, and stopped there: “We do not reach the remaining constitutional issues and affirm the ruling of the Fifth Circuit on the Seventh Amendment ground alone.”

In some sense I would count this as a victory for the SEC. Oh, sure, it lost, but it was definitely going to lose. This is a relatively narrow loss: It can’t seek fines in its in-house courts, but its basic system of rulemaking survives. For now. Still, Justice Sonia Sotomayor wrote in her dissent: “Today’s decision is a massive sea change. Litigants seeking further dismantling of the ‘administrative state’ have reason to rejoice in their win today, but those of us who cherish the rule of law have nothing to celebrate.”

SEC’s Top Cop Concerned About Private Credit Valuations, Opacity

During a wide-ranging interview this week, Gurbir Grewal said he sees a range of potential risks in the $1.7 trillion private-lending industry. The enforcement chief signaled everything from market concentration to the way assets are valued will face more scrutiny.

“I’m concerned about valuation issues: how they’re marking these investments because they are illiquid,” Grewal said. “I’m concerned about — as we would be with other private funds — fee and expense issues, and with conflict-of-interest issues.”

The SEC is taking a closer look at private credit.The SEC hasn’t brought many enforcement actions over private lending, and Grewal didn’t mention any specific firms or deals drawing regulatory attention. Still, his comments serve as a warning as some of the biggest names in finance increase their involvement.

SEC CHARGES SOUTH FLORIDA COMPANY AND PRINCIPAL IN FRAUD SCHEME

The Securities and Exchange Commission announced today it filed an action against BorrowMoney.com, Inc. and its sole officer and majority shareholder, Florida resident Aldo Piscitello.

According to the SEC’s complaint, BorrowMoney.com purports to provide an internet-based platform to match mortgage and loan providers with prospective borrowers, earning revenue by supplying leads of prospective customers to those lenders. As alleged in the complaint, in Forms 10-Q filed with the Commission, for each of its first three reporting periods for its fiscal year ending on August 31, 2019, BorrowMoney.com represented that its revenue was related to lead generation. According to the complaint, however, the majority of the revenue reported was fictitious and, for the remainder, BorrowMoney.com did not have contracts or events that met the criteria for revenue recognition required by U.S. generally accepted accounting principles. The complaint also alleges Piscitello failed to make required disclosures related to his beneficial ownership of BorrowMoney.com securities. The complaint further alleges BorrowMoney.com did not report Piscitello’s failure to file beneficial ownership filings.

Crypto Unmentioned at First 2024 U.S. Presidential Debate

Crypto did not come up during the first general debate in the 2024 U.S. presidential election, despite industry participants’ hopes.

Legal Fee Tracker: Lawyer’s 4,000 hours help Sullivan & Cromwell reach $200 mln mark in FTX case

Even for a busy lawyer at a big corporate law firm, billing close to 11 hours a day on a single case, five days a week for 18 months straight is no easy feat.

That’s the average pace Brian Glueckstein has kept up as one of the lead lawyers in the FTX bankruptcy since it began in November 2022, according to court records though April. All those hours — including 342 in December 2022 alone — have helped his law firm Sullivan & Cromwell amass close to $200 million in billings as debtor’s counsel in the sprawling case so far.

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Glueckstein, with a current hourly rate of $2,375, has billed more than 4,000 hours in the bankruptcy, the most of any partner at his firm, according to a Reuters analysis of monthly fee statements. He is one of hundreds of lawyers and staffers from 890-lawyer Sullivan & Cromwell who have billed more than 168,000 hours in the case altogether.

Finra Enforcement Actions Decline as Regulator’s Budget, Headcount Expand

Two days after Christmas, a prominent Wall Street regulator updated a database with news of interest to the industry: A $1.4 trillion brokerage had been slapped with one of the year’s biggest fines for allegedly losing track of almost a million trades.

But there was no press release when the Financial Industry Regulatory Authority hit LPL Financial Holdings Inc. with the $6 million penalty. Nor did Finra seek attention for its multimillion-dollar sanctions of Goldman Sachs Group Inc. and Barclays Plc months earlier.

The quiet end to those probes capped a year in which the number of enforcement actions brought by the brokerage industry’s self-funded regulator slid to the lowest level in its history. Total fines picked up last year but are down by about half since a peak in 2016. Meanwhile, Finra’s headcount and budget have expanded.