Dustin Nofziger, a member of Pryor Cashman’s Financial Institutions Group, spoke with Law360 regarding the U.S. Supreme Court’s 6-3 ruling in Securities & Exchange Commission v. Jarkesy, which is set to complicate enforcement for several regulatory agencies.  

In “SEC's High Court Loss May Sting For Banking Enforcement,” Dustin discusses  how the Court’s decision can affect an agency seeking civil money penalties:

For one thing, attorneys said these two claim types [unsafe or unsound practices and violations of law and regulation]  have less straightforward common-law analogues, although if an agency is seeking fines, Jarkesy "makes it pretty clear that a case involving civil money penalties is going to implicate the Seventh Amendment" right to jury trial, said Dustin Nofziger, a member of the financial institutions group at Pryor Cashman LLP.

He goes on to analyze how public rights exception to the Seventh Amendment right to jury trial will be tested in the future by bank regulators:

"It will be a closer question whether the public rights exception applies in these cases," Nofziger said. "Banking regulators are going to argue that their claims arise from regulatory regimes and are more similar to the [workplace safety] regulatory framework" — which the high court ruled in the 1970s could be administratively enforced — "than the securities fraud framework."

But banks and bankers fighting these claims will likely come up with some "interesting and creative" counterarguments to test how narrow this public rights exception really is, Nofziger said.

Dustin also notes the Court’s Seventh Amendment decision is unlikely to modulate the banking agencies’ overall approach to enforcement, as they currently have no avenue other than their non-jury administrative processes to impose civil money penalties:

"If a jury trial is required in these cases, then the prudential banking regulators would need Congress to step in and either allow them access to the courts or provide for juries in ALJ proceedings," he said.

Finally, Dustin notes that because the Supreme Court ruled for Jarkesy on the jury trial issue, it did not find it necessary to decide Jarkesy’s separate challenge to the constitutionality of for-cause removal protections for the SEC’s administrative law judges (“ALJs”):

"That's a big issue for the banking regulators because they all use ALJs, and their ALJs are actually subject to more removal protection[s] than the SEC's ALJs," Nofziger said. "I suspect that issue will work its way up to the Supreme Court again[.] [I]f you're a bank or banker faced with an enforcement action in an administrative hearing process, that's certainly an argument you're going to make."

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