Securities Fraud

Exchange Commission.  Mr. Jarkesy, the owner of two hedge funds, was facing multiple counts of securities fraud in a suit initiated by the Securities and Exchange Commission (SEC). In 2020, Jarkesy was found guilty of securities fraud in an evidentiary hearing by an Administrative Law Judge (ALJ) of the SEC. Following this decision, Jarkesy appealed to The Court of Appeals for the 5th Circuit, arguing that his Constitutional right to a jury trial was violated.

On May 18, 2022, the 5th Circuit ruled in favor of Jarkesy, reversing the ALJs finding that Jarkesy had committed securities fraud. Specifically, the court held that securities fraud was a common law offense and thus, the seventh amendment right to a jury trial should have been available. The SEC successfully appealed this ruling to the Supreme Court, and it will soon decide whether the SEC may continue to adjudicate claims of securities fraud through its administrative adjudicatory process.

The Supreme Court’s decision has the potential to place a major obstacle on the SEC and its ability to successfully sue private individuals and entities for securities fraud. Currently, the SEC has wide discretion in adjudicating securities fraud claims, enjoying nearly a 90% success rate in cases brought before its ALJs. In contrast, less than 70% of the cases that are brought in federal court rule in the SECs favor. A major reason for this discrepancy may be that, unlike in an SEC adjudicative proceeding, defendants in federal court are entitled to certain protections such as the right to jury trial and an independent fact finder.

In Jarkesy, the Supreme Court will have to decide whether the SEC must submit future securities fraud cases to federal court. If upheld, this case can substantially decrease the SECs chances of obtaining a settlement or conviction. Furthermore, since its likelihood of success in federal court is significantly lower, this decision may disincentivize the SEC from bringing future low-stakes securities fraud claims.

Lorraine Gauli-Rufo and LGR Law Group focus on defending federal charges brought in New Jersey or in Manhattan, New York, and White Plains. If you or a loved one is facing federal criminal charges or is under investigation by federal agents or have been contacted by a federal agent or an Assistant United States Attorney, we can help you. Ms. Gauli-Rufo and her team have successfully defended people charged with crimes throughout New York and New Jersey. They have obtained acquittals of many charges and have been able to obtain reduced charges and below Guideline sentences (including probationary sentences) in thousands of cases over the last 30 years. Our representative cases include healthcare fraud, bank fraud, wire fraud, mail fraud, internet and computer fraud, securities fraud, Hobbs Act Robbery, Firearm and gun charges, drug offenses, RICO charges, gang crimes, and more. We also handle appeals and habeas matters. We have appeared and argued in both the Third Circuit Court of Appeals and the Second Circuit. We offer a free 15-minute consultation and defense strategy session for all potential clients. Call today to schedule an appointment with our experienced and trusted criminal defense lawyers. Call (973) 239-4300 or contact us from our website or email us at [email protected].

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