SEC v. Jarkesy

In 2013, the SEC initiated an administrative proceeding against George R. Jarkesy Jr. and his firm Patriot28, LLC, alleging fraud in managing two hedge funds. An SEC administrative law judge imposed civil penalties and disgorgement. Jarkesy appealed, arguing the proceeding violated his Seventh Amendment right to a jury trial. The Fifth Circuit ruled the SEC’s in-house tribunal unconstitutional on multiple grounds. The U.S. Supreme Court, in a 6-3 decision authored by Chief Justice Roberts and issued on June 27, 2024, held that when the SEC seeks civil penalties for fraud, the defendant is entitled to a jury trial in federal court. The Court reasoned that such penalties are a form of legal relief at common law, and the SEC’s administrative adjudication of these claims was unconstitutional.

The Supreme Court held (6-3) that the SEC’s administrative enforcement proceeding seeking civil penalties for fraud violated the Seventh Amendment; defendants in such cases are entitled to have the claims adjudicated by a federal district court with a jury. The ruling affirmed the Fifth Circuit on this issue but did not address other constitutional challenges.

Whether the Securities and Exchange Commission’s use of its own administrative law judges to impose civil penalties for securities fraud, without a jury, violates the Seventh Amendment right to a jury trial.

The ruling significantly curtails the SEC’s ability to bring enforcement actions internally and will force more cases into federal court, potentially slowing enforcement. It strengthens constitutional jury trial protections and may invite challenges to similar administrative penalty schemes used by other federal agencies, reshaping the administrative state’s enforcement landscape.