For nearly a century, the U.S. Securities and Exchange Commission (SEC) has held unparalleled authority over investment mechanisms and capital formation. But now, this power is under siege. As the SEC continues to expand its reach under Chairman Gary Gensler, a series of high-stakes cases—including two before the U.S. Supreme Court—could fundamentally alter its role at a moment when the complexity of modern markets has never been greater.
A key case that could dramatically shift the SEC’s authority is SEC v. Jarkesy, which the Supreme Court heard in November. The case questions whether the SEC’s practice of using its in-house administrative law judges to handle fraud claims violates the Seventh Amendment’s right to a jury trial. Chief Justice John Roberts, along with several other justices, expressed skepticism about the SEC’s ability to oversee its own enforcement through these tribunals, casting doubt on the very legitimacy of its internal adjudication system. A ruling against the SEC could push its enforcement actions out of its preferred venue and into the federal court system, making the agency’s processes more costly, slower, and uncertain.
But Jarkesy isn’t the only challenge facing the SEC. Another case before the Court, Loper Bright Enterprises v. Raimondo, could further limit the SEC’s power. This case centers on a 1976 law requiring fishing vessels to carry federal observers and, under specific conditions, pay their salaries. In 2020, the National Marine Fisheries Service decided to expand this interpretation, a move upheld by the D.C. Circuit Court of Appeals. The Supreme Court will now decide whether to abandon Chevron deference, a key legal principle that has allowed agencies like the SEC to interpret ambiguous statutes in ways that can significantly expand their regulatory power. Without Chevron, the SEC could lose its ability to broadly interpret laws, especially crucial as it grapples with emerging technologies like cryptocurrency.
Cryptocurrency regulation is at the heart of Gensler’s battles. The SEC is vying with the Commodity Futures Trading Commission (CFTC) for control over this fast-growing market, especially after the FTX scandal revealed the sector’s regulatory gaps. Recent court rulings, such as in SEC v. Ripple Labs, have added to the uncertainty, with some judges ruling that certain cryptocurrencies do not qualify as securities under SEC regulation. This could open the door for crypto firms to operate outside of the SEC’s reach, severely undercutting its efforts to impose order on the sector.
Under Gensler, the SEC has accelerated its rule-making process, with plans to finalize 63 new rules in just his first four years—more than his two predecessors combined. However, this aggressive approach is beginning to clash with the constitutional constraints that defined the agency’s origins. Founded in the wake of the 1929 stock market crash, the SEC was initially meant to respond reactively to market failures. Gensler’s tenure, however, has seen the agency take a much more proactive role, pushing boundaries that are now being tested by the courts.
As Justice Neil Gorsuch pointed out during the Jarkesy argument, “this is not your grandfather’s SEC.” With cases like Jarkesy, Loper Bright, and a growing number of legal challenges in the cryptocurrency space, the SEC’s future hangs in the balance. If the courts restrict the agency’s ability to regulate its turf, it could radically reshape the landscape of financial oversight in the U.S.—but whether that’s a positive or negative shift remains to be seen.
The SEC finds itself at a crossroads, with its regulatory reach potentially diminishing just as its role in managing complex financial markets is more crucial than ever. Whether the agency will retain its power to navigate these new challenges, or face a dramatic restructuring, depends on how the courts ultimately rule in the coming months.
