## Facts

- Congress created the Securities and Exchange Commission (SEC) to enforce federal securities laws through enforcement actions in federal court and, for certain matters, through the SEC’s internal administrative adjudication system.
- The SEC’s in-house system does not use juries; an SEC administrative law judge (ALJ) (and ultimately the Commission) serves as fact-finder and decisionmaker.
- In 2010, the Dodd-Frank Act expanded the SEC’s authority to seek civil penalties through administrative proceedings, allowing the SEC (for the first time) to pursue all civil-penalty enforcement actions in-house rather than in federal court.
- The SEC initiated an in-house administrative enforcement action against George R. Jarkesy, Jr., and his firm, Patriot28, LLC, alleging securities fraud under federal antifraud provisions.
- After an evidentiary hearing, an ALJ found Jarkesy and Patriot28 liable and imposed sanctions including $300,000 in civil penalties, along with additional relief such as disgorgement and industry bars.
- The Commission affirmed the ALJ’s liability findings and sanctions and entered a final order.
- Jarkesy and Patriot28 petitioned for review in the U.S. Court of Appeals for the Fifth Circuit, raising constitutional objections that included the lack of a jury trial.
- The Fifth Circuit vacated the SEC’s final order on constitutional grounds, and the Supreme Court granted certiorari.

## Issues

1. When the SEC seeks civil penalties for securities fraud, does the Seventh Amendment entitle the defendant to a jury trial?
2. Did Congress violate the nondelegation doctrine by authorizing the SEC to choose between bringing certain enforcement actions in federal court or in the agency’s in-house forum?
3. Do statutory removal protections for SEC ALJs violate Article II by limiting the President’s ability to supervise executive officers?

## Decision

- The Supreme Court affirmed the Fifth Circuit’s judgment vacating the SEC’s order and remanded for further proceedings.
- The Court held, 6–3, that when the SEC seeks civil penalties for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.
- Because the Court resolved the case on the Seventh Amendment ground, it did not decide the nondelegation or Article II removal questions.

## Legal Principles

- The Seventh Amendment preserves the right to a jury trial in “Suits at common law,” which turns on (1) whether the claim is analogous to a claim historically tried to a jury in courts of law, and (2) whether the remedy sought is legal rather than equitable.
- Securities-fraud claims based on misrepresentations or concealment of material facts are analogous to common-law fraud claims, which were historically tried to juries.
- Civil monetary penalties are a classic legal remedy because they are punitive and deterrent, not merely compensatory or restorative.
- The “public rights” exception does not permit Congress to assign final resolution to an agency, without a jury, when the government prosecutes a claim that is comparable in substance to traditional common-law fraud and seeks legal penalties.
- When the Seventh Amendment jury-trial right applies, an agency may not finally adjudicate the claim in a nonjury administrative proceeding; the matter must be tried in an Article III court where a jury is available.

## Conclusion

Securities and Exchange Commission v. Jarkesy holds that the SEC’s pursuit of civil penalties for securities fraud triggers the Seventh Amendment right to a jury trial because the claim resembles common-law fraud and the remedy is legal; therefore, the SEC may not obtain such penalties through its in-house adjudication system, and the Court affirmed the Fifth Circuit’s vacatur of the agency order while leaving other constitutional challenges undecided.


Securities and Exchange Commission v. Jarkesy, 144 S.Ct. 2117 (2024)