On June 27, 2024, the Supreme Court issued a decision holding that the Securities and Exchange Commission's (SEC) practice of seeking civil monetary penalties in securities fraud cases filed in its administrative forum violates the Seventh Amendment of the Constitution. SEC v. Jarkesy, No. 22–859 (June 27, 2024). The Supreme Court’s reasoning could have far reaching effects if applied to other federal agencies that utilize administrative law judges (ALJs) to adjudicate fraud-based allegations. In particular, parties facing civil monetary penalties or other forms of punishment arising from allegations of fraud, before other enforcement agencies such as the FDIC, OCC or Federal Reserve, may be able to request a jury trial rather than having their fate determined by in-house, administrative law judges that historically favor the agencies prosecuting them.

Background: The SEC’s contested procedures

The SEC has long had the statutory authority to bring fraud-based claims in federal court. The SEC also had statutory authority to bring such claims against SEC-registered entities and individuals in the SEC’s in-house administrative forum where the ALJ acts as the sole trier-of-fact, i.e. there is no jury. In 2010, the Dodd-Frank Act authorized the SEC to sue anybody in its administrative forum, including for fraud.

Initial findings, appeal and granting of certiorari

Soon after the passage of the Dodd-Frank Act, the SEC filed an administrative action against an unregistered investment adviser, Patriot28 and its manager George Jarkesy, Jr., alleging fraud. After reviewing the ALJ’s decision, the Commission’s final order imposed a penalty of US$300,000, directed the defendants to cease and desist committing or causing violations of the antifraud provisions, ordered Patriot28 to disgorge earnings and barred Jarkesy from participating in the securities industry.1

The Fifth Circuit vacated the sanctions based upon violations of the defendants’ Seventh Amendment right to a jury trial. The SEC appealed to the Supreme Court.

The Supreme Court opinion

The Supreme Court decided the case on a single issue: “whether the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties against him for securities fraud.”2 In a 6 – 3 decision authored by Chief Justice John Roberts, the Supreme Court held that “[a] defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator.”3

The Supreme Court stated that the Seventh Amendment “extends to a particularly statutory claim if the claim is ‘legal in nature.’”4 The Supreme Court held that civil penalties are legal in nature when they are designed to punish and deter, rather than to compensate, because “while courts of equity could order a defendant to return unjustly obtained funds, only courts of law issued monetary penalties to ‘punish culpable individuals.’”5 The Supreme Court explained that the “SEC’s antifraud provisions replicate common law fraud, and it is well established that common law claims must be heard by a jury.”6

The Supreme Court denied the SEC’s argument that the public rights exception applies. Under the public rights exception, Congress may assign a matter for decision to federal agencies so long as it remains consistent with the Seventh Amendment. In rejecting the SEC’s argument, the Supreme Court emphasized that “matters concerning private rights may not be removed from Article III courts.”7 The SEC argued that this case is a public right because “Congress created ‘new statutory obligations, impose[d] civil penalties for their violation and then commit[ed] to an administrative agency the function of deciding whether a violation ha[d] in fact occurred.’”8 The Supreme Court disagreed, stating that “what matters is the substance of the suit, not where it is brought, who brings it, or how it is labeled.”9 Accordingly, the Supreme Court held that “[t]he exception does not apply here because the present action does not fall within any of the distinctive areas involving governmental prerogatives where the Supreme Court has concluded that a matter may be resolved outside of an Article III court, without a jury.”10

Note: While the court only linked the SEC’s civil penalties for fraudulent activity to the Seventh Amendment, parties facing other civil monetary penalties or forms of punishment before agencies’ in-house tribunals may be able to raise new Seventh Amendment challenges to future actions by similarly establishing a common law link, consistent with the Supreme Court’s reasoning.


In a concurrence joined by Justice Thomas, Justice Gorsuch wrote that the SEC’s in house prosecutions run afoul of Article III and the Due Process Clause of the Fifth Amendment in addition to violating the Seventh Amendment’s right to a jury trial. In Gorsuch’s view, the suit at issue clearly involved a common law cause of action, and therefore the SEC administrative process was unconstitutional under Article III. Additionally, because the SEC’s final order would deprive Mr. Jarkesy of property, “due process demand[ed] nothing less than the process and proceedings of the common law,” including “the regular course of trial proceedings…, not the use of ad hoc adjudication procedures before the same agency responsible for prosecuting the law.”11


In her dissent, Justice Sotomayor, joined by Justices Kagan and Jackson, stated that the Supreme Court had repeatedly “blessed” the practice of the government pursuing civil penalty claims without a jury in federal district court, noting over 200 statutes authorizing federal agencies to seek civil penalties in such circumstances.12 Furthermore, Sotomayor wrote that that the majority’s “ruling reveals a far more fundamental problem: This Court’s repeated failure to appreciate that its decisions can threaten the separation of powers.”13 According to the dissent, the answer in the case at hand was straightforward: “[w]hen a claim belongs to the Government as sovereign, the Constitution permits Congress to enact new statutory obligations, prescribe consequences for the breach of those obligations and then empower federal agencies to adjudicate such violations and impose the appropriate penalty.”14


Jarkesy spells the end of the SEC depriving defendants accused of fraud of their constitutional right to a jury in federal court. Going forward, other federal agencies’ use of similar in-house tribunals for fraud-based cases may be subject to similar constitutional challenges.

The decision has several possible consequences. Defendants are typically afforded more discovery in federal court proceedings than administrative tribunals. Defendants also sometimes perceive a “home-court advantage” for administrative proceedings, and statistically, the SEC has indeed typically had a higher success rate before administrative tribunals. After this decision, would-be defendants may have more opportunities to advocate that the SEC should settle rather than bear the resource and time burdens of a federal proceeding, or to advocate that a complex securities case may not be suitable for a jury trial.


1 Opinion at 5.

2 Id. at 6.

3 Id. at 27.

4 Id. at 8.

5 Id. at 9.

6 Id. at 6.

7 Id. at 14.

8 Id. at 21.

9 Id. at 22.

10 Id. at 7.

11 Id. at 12.

12 Id. at 1 (Sotomayor, J., dissenting).

13 Id. at 2.

14 Id. at 8 (citing Atlas Roofing Co. v. Occupational Safety and Health Review Comm’n, 430 U. S. 442, 450-55 (1977)).


Co-Head of Regulatory, Investigations, Securities and Compliance, United States
Head of White Collar Defense and Investigations, United States

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