On June 30, 2023, the U.S. Supreme Court agreed to take up a case to consider the legality of the SEC’s use of in-house administrative tribunals, which the agency uses to enforce the federal securities laws. The agency sought Supreme Court consideration of a federal appellate court ruling that held the administrative courts to be unconstitutional. The case could significantly impact the way in which the agency enforces the federal securities laws. The court’s June 30, 2023 order in which the SEC’s petition for a writ of certiorari was granted can be found here.


When Congress created the Securities and Exchange Commission in the wake of the Great Depression, it granted the agency the power to enforce the securities laws either in federal district court or through internal hearings in front of an administrative law judge (ALJ). For many years, the agency used the in-house tribunals to sue Wall Street defendants it regulated directly, such as stockbrokers. However, the Dodd-Frank Act allowed the SEC to sue a broader array of persons in the administrative courts, including people not directly involved in the securities industry. The agency’s expanded use of the in-house courts was highly criticized, particularly after experience showed that the agency almost always prevailed before the ALJs.

The SEC’s Enforcement Action

The case that the Supreme Court has agreed to take up involves hedge-fund operator George Jarkesy. In 2013, the SEC commenced an administrative proceeding against Jarkesy and his advisory firm, Patriot28, based on allegations that Jarkesy and his firm allegedly mismanaged two hedge funds controlling $24 million. In 2014, an ALJ found Jarkesy liable for fraud, ordering him to pay a $300,000 fine and barring him from participating in the securities industry.

Jarkesy filed a separate action in federal court seeking to challenge the SEC’s authority to bring the enforcement action against him before the administrative tribunal. In May 2022, a divided three-judge panel of the Fifth Circuit ruled in Jarkesy’s favor, holding that the administrative courts, as currently constituted and structured, violate the Seventh Amendment’s right to a jury trial. The appellate court also held that the agency’s authority to choose between pursuing enforcement actions in district court or in an administrative tribunal overstepped the limits on Congressional delegation of power. Finally, the appellate court held that Congress violated the separation of powers pertaining to the removal of executive officials. In October 2022, the Fifth Circuit denied the SEC’s petition for en banc rehearing of the case.

The SEC’s Cert Petition

In March 2023, the U.S. Justice Department, on the SEC’s behalf, filed a petition to the Supreme Court for a writ of certiorari. In its petition, the agency asked the Court to take up the case to reverse the Fifth Circuit’s decision.

As summarized in a SCOTUS Blog post about agency’s petition (here), the agency argued that the Supreme Court has a history of upholding Congressional laws that establish public rights and in which Congress has provided for the laws’ enforcement through administrative proceedings. The agency argued that the Court has long held these types of proceedings to be consistent with the Seventh Amendment. The agency also argued that the agency’s authority to enforce the federal securities laws either in the district courts or through administrative tribunals does not create violate the constitution, as the choice is purely an executive function and not a legislative power delegated by Congress. Finally, the agency argued that the various constraints on the removal of the ALJs does not violate the separation of powers, as the president’s control over executive officials does not extent to “quasi-judicial” officers.


The Supreme Court’s decision to take up the case sets up the court’s consideration of a host of interesting legal issues. From my perspective, the Seventh Amendment question – that is, whether the agency’s use of the administrative tribunals violates the constitutional right to a jury trial – is particularly interesting. The other issues, about delegated authority and separation of powers, are more intricate and technical, but could equally resulting in the Court restricting the agency’s ability to seek financial penalties through its in-house courts.

It remains to be seen how this case will unfold; the case will be argued sometime in the Fall, and it will be decided some time before the end of the Court’s next term, in June 2024. While the case has not even been briefed, much less argued, the betting line has to be, at least for now, that the Court will strike down the agency’s use of the in-house tribunals. The current Supreme Court has shown a willingness to confront the administrative state.

From the perspective of the critics of the agency’s use of administrative courts, the fundamental problem with the in-house tribunals is, as the Wall Street Journal put it in a July 3, 2023, editorial about the Jarkesy case (here), that in using the in-house courts, the agency “combines enforcement and judicial power, acting as prosecutor, judge, and jury.” The critics also argue that various features of the administrative courts violate defendants’ due process rights. The Journal also argued in its editorial that this case is “another opportunity to bolster individual liberty against an oppressive administrative state.”

At a minimum, the case will require the court to consider how the SEC will enforce the federal securities laws. The case could have a significant impact on the way that agency pursues enforcement actions against individuals and firms that are accused of violating the federal securities laws.