The United States Supreme Court has held that that, in light of the Seventh Amendment’s right to a jury trial, the SEC must pursue enforcement actions seeking civil penalties in a jury trial proceeding in federal court rather than in an action before an administrative law judge. The Court’s 6-3 ruling could have significant consequences for the many SEC enforcement actions now pending in the agency’s administrative tribunals, as well as for the agency’s pursuit of future enforcement actions. The Court’s ruling could also have important implications for other federal agencies’ use of administrative tribunals as well. A copy of the Court’s June 27, 2024, opinion in SEC v. Jarkesy can be found here.


The case before the U.S. Supreme Court involved 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 an 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, among other things, that the administrative courts, as currently constituted and structured, violate the Seventh Amendment’s right to a jury trial. The Justice Department, acting on behalf of the SEC, filed a petition to the U.S. Supreme Court for a writ of certiorari. As discussed here, in June 2023, the Court agreed to take up the case.

The Court’s Decision

In a June 27, 2024, opinion written for a 6-3 majority by Chief Justice John Roberts, the Court held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial. The three liberal justices (Justices Kagan, Sotomayor, and Jackson) joined a dissenting opinion written by Justice Sotomayor.

The Court began its analysis by considering whether an SEC securities fraud action is the kind of action to which the Seventh Amendment’s jury trial guarantee applied. The Court said that the civil penalties of the type the SEC is permitted to seek are “a type of remedy at common law that could only be enforced in courts of law.” Accordingly, the Court said, “This suit implicates the Seventh Amendment right and a defendant would be entitled to a jury on these claims.”  The Court added that “The close relationship between federal securities fraud and common law fraud confirms that conclusion.  Both target the same basic conduct: misrepresenting or concealing material facts.”

The Court said that because the action against Jarkesy is the type that implicates the Seventh Amendment, he would be entitled to a jury trial unless the “public rights” exception to the Seventh Amendment’s requirements applies. Under this exception, Congress may assign the matter for decision to an agency without a jury, consistent with the Seventh Amendment. The public rights exception has been found to apply to, for example, the collection of revenue; aspects of customs law; immigration law; relations with Indian tribes; the administration of public lands; and the granting of public benefits. The SEC argued that Congress’s action of creating civil penalties liability and giving the agency the power to pursue action for these penalties in an administrative proceeding brought these types of actions with the public rights exception.

In considering whether or not the case against Jarkesy falls within the public rights exception, the Court looked to its 1989 decision in Grandfinanciera v. Norbert (here). In that case, the Court held that a fraudulent conveyance proceeding in bankruptcy was akin to the fraud suits at common law, and therefore the Seventh Amendment right to a jury trial applied, and further held that the public rights exception did not apply. The Court here said that Granfinanciera does away with much of the SEC’s public rights exception argument.  Congress cannot, the Court said, quoting Granfinanciera, “conjure away the Seventh Amendment by mandating that traditional legal claims be . . . taken to an administrative tribunal.”

The majority concluded its opinion by saying that “A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator.  Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch.  That is the very opposite of the separation of powers that the Constitution demands. Jarkesy and Patriot28 are entitled to a jury trial in an Article III court.” The Court affirmed the Fifth Circuit and remanded the case for further proceedings.

In her dissenting opinion, Justice Sotomayor argued that the type of action filed against Jarkesy clearly falls within the public rights exception to the Seventh Amendment. Among other things, she said that “This Court has held, without exception, that Congress has broad latitude to create statutory obligations that entitle the Government to civil penalties, and then to assign their enforcement outside the regular courts of law where there are no juries.”


There is no question that this is a significant decision with important implications.

For starters, this case has very important overall implications for the SEC’s enforcement efforts. As Justice Gorsuch noted in his concurring opinion in this case, the SEC has frequently used its authority to use pursue enforcement actions, where it has prevailed with much greater frequency than it has in civil actions in federal court. According to Justice Gorsuch, the SEC has won about 90% of its contested in-house proceedings compared to 69% of its cases in court. Without the ability to pursue claims in what has been for the SEC a more hospitable form, the agency at a minimum may not prevail as frequently, and perhaps might even pursue fewer enforcement actions.

These possibilities obviously have important implications for the agency’s ability to police the securities markets and to protect investors. The reverse is also true; the possibility that individuals and firms facing enforcement actions now will not have to face the possibility of an administrative proceeding may mean that they may be more likely to prevail against the SEC’s charges, as the agency’s track record in federal court is less favorable than its record in administrative proceedings.

On a more immediate level, the Court’s decision in this case has obvious significance for the literally hundreds of individuals and firms that currently have administrative enforcement actions pending against them before an SEC administrative law judge. At a minimum, these cases would seem to have been cast into disarray, at least in those cases where the agency is seeking to recover civil penalties. It is not clear what will happen next in these cases. The agency should probably brace itself for a wave of motions to dismiss in these pending cases; the agency might well have no recourse but to allow the cases to be dismissed and then to have to take up the question of whether to renew the proceedings in the form of a federal court civil action with a right to a jury trial.

The Court’s decision could also have important ramifications for other agencies’ abilities to pursue proceedings within their bailiwick in their own administrative courts. As Justice Sotomayor noted in her dissenting opinion, Congress has enacted more than 200 statutes authorizing dozens of agencies to impose civil penalties for violations of statutory obligations. At least in statutory proceedings involving actions that are analogous to common law claims, the defendants in these actions potentially could argue that they are entitled to a civil court jury trial rather than an administrative proceeding and seek to have their claims dismissed. Potentially, the enforcement efforts of federal agencies generally could be significantly undermined, or at minimum substantially altered. The battle ground issue in those other proceedings will be whether or not the specific type of action involved falls within the public rights exception to the Seventh Amendment’s jury trial requirements.

I will say this: over the years, whenever the Supreme Court has agreed to take up a securities law case, I have commented that the very action of agreeing to take up the case is significant, because once the Court has a case, there is always the possibility that the Court will do something that really shakes up the securities law world. This case proves my point; the Court’s decision in this case is blockbuster. I suspect the ramifications will ripple through the courts for many years to come.