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SEC Judges’ Constitutional Cloud Darkens After Appeal Ruling

The US Securities and Exchange Commission headquarters in Washington, D.C.

The US Securities and Exchange Commission headquarters in Washington, D.C.

Photographer: Al Drago/Bloomberg
Updated on

The Fifth Circuit darkened the legal cloud over the SEC’s use of in-house judges to hear cases, saying Wednesday the system violated a hedge fund manager’s constitutional right to a jury trial in federal court.

Congress’ delegation of legislative power to the Securities and Exchange Commission was unconstitutional because it failed to “provide an intelligible principle by which the SEC would exercise the delegated power,” the US Court of Appeals for the Fifth Circuit said in a 2-1 opinion.