In a 6-3 vote, the justices upheld a decision by a deeply conservative federal appeals court that ruled in favor of plaintiff George Jarkesy, the founder of an investment fund who had been fined $300,000 for securities fraud and ordered to repay $685,000 in "illicit gains."
Curbing the enforcement powers of federal agencies, whose leadership is nominated by the White House, has long been a goal of conservatives seeking to pare back Washington's ability to more efficiently uphold regulations, especially those targeting big business.
Chief Justice John Roberts said in the majority opinion that forcing defendants to go through the SEC's in-house tribunals rather than a federal court violated the constitutional right to a jury trial.
The decision could possibly ripple through the US government, as several other regulatory agencies use similar tribunals.
"A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator," Roberts wrote.
"Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands," the opinion concluded.
The decision was backed by the six conservative judges sitting on the country's highest court, with the three left-leaning justices dissenting.
"Make no mistake: Today's decision is a power grab," said Justice Sonia Sotomayor in a sternly written dissenting opinion.
"The constitutionality of hundreds of statutes may now be in peril, and dozens of agencies could be stripped of their power to enforce laws enacted by Congress," she wrote.