SEC v. Jarkesy

The U.S. Securities and Exchange Commission charged George R. Jarkesy Jr. and his firm Patriot28 LLC with securities fraud, seeking civil penalties through its in-house administrative law judge rather than a federal district court. Jarkesy challenged the proceeding, arguing it violated his Seventh Amendment right to a jury trial, and also raised claims of unconstitutional delegation and removal protections. The Supreme Court ruled 6-3 in his favor, holding that when the SEC seeks civil penalties for fraud, the defendant is entitled to a jury trial in an Article III court. The decision invalidated the SEC's use of administrative adjudication for such penalties and left unresolved the nondelegation and removal issues.

The Supreme Court ruled 6-3 in favor of Jarkesy, holding that the SEC's administrative adjudication of fraud claims seeking civil penalties violates the Seventh Amendment. Such cases must be brought in federal court where the defendant can demand a jury trial.

Whether the SEC's use of in-house administrative law judges to impose civil penalties for securities fraud violates the Seventh Amendment right to a jury trial; whether Congress unconstitutionally delegated legislative power to the SEC; and whether statutory removal protections for SEC administrative law judges violate Article II.

The ruling significantly curtails the SEC's and potentially other federal agencies' ability to use in-house tribunals for enforcement actions seeking civil penalties. It may shift many regulatory enforcement cases to federal courts, granting defendants greater procedural protections and limiting administrative agency power.