SEC v. Jarkesy Revisions: 6/27/24
The Supreme Court ruled that people and companies accused of securities fraud by the SEC are entitled to a jury trial in federal court, and the agency cannot resolve those cases entirely through its own in-house proceedings.
The decision limits a powerful enforcement tool the SEC gained under the 2010 Dodd-Frank Act and raises broad questions about whether dozens of other federal agencies can continue to impose civil penalties through their own administrative processes.
How it got here: The SEC adjudicated the case in-house and issued its final order in 2020; a divided Fifth Circuit panel vacated it on Seventh Amendment grounds; the SEC petitioned the Supreme Court, which agreed to hear the case.
The Case in Depth
What happened
George Jarkesy ran two investment funds that raised about $24 million from roughly 120 investors. The SEC accused him and his advisory firm, Patriot28, of lying about the funds' auditor and prime broker, misrepresenting investment strategies, and inflating reported values to collect larger management fees. Rather than sue in federal court, the SEC chose to adjudicate the charges in-house and ultimately imposed a $300,000 civil penalty, a disgorgement order, a cease-and-desist order, and a bar on Jarkesy from working in the securities industry.
The question before the Court
When the SEC accuses someone of securities fraud and seeks to fine them, does the Constitution guarantee the accused a jury trial in federal court rather than a hearing decided entirely by the agency itself?
The Court's answer
Yes — when the SEC seeks civil penalties for securities fraud, the accused has a constitutional right to a jury trial in federal court, and the agency cannot bypass that right by handling the case entirely in its own proceedings.
The Seventh Amendment guarantees jury trials in civil cases that are "legal in nature." The SEC's civil penalties qualify because they are designed to punish and deter wrongdoing — not simply to compensate victims — making them the kind of monetary remedy that historically could only be obtained in a court of law. The fraud claims themselves also closely track common law fraud, using the same terms and legal principles Congress deliberately borrowed from the common law. Because those two features place the action within the Seventh Amendment's reach, a jury is required unless the "public rights" exception applies. That exception covers a narrow set of historically recognized areas — revenue collection, customs, immigration, public lands, and the like — where the political branches have long handled matters without courts. Securities fraud enforcement has no such pedigree; courts have handled fraud claims since before the founding. Congress cannot escape the jury-trial requirement simply by recasting a common law claim as a new statutory scheme and assigning it to an agency.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
People and businesses targeted by the SEC for securities fraud can now demand a federal jury rather than face an agency that simultaneously investigates, prosecutes, and adjudicates the case. For agencies that can only seek civil penalties in-house — not in federal court — the ruling may require Congress to rewrite their enforcement statutes before those agencies can collect any fines at all.
What changes now
The Fifth Circuit's order vacating the SEC's penalty against Jarkesy and Patriot28 stands, and the case is sent back to the lower courts for further proceedings. The SEC retains full authority to pursue the charges — but must now do so in federal court before a jury. Two other constitutional questions Jarkesy raised (whether the SEC's forum-selection discretion violated the nondelegation doctrine and whether the removal protections for SEC administrative law judges are unconstitutional) were not addressed and remain open on remand.
What this does not decide
The Court did not rule on whether the SEC's discretion to choose between federal court and in-house proceedings violates the nondelegation doctrine, or whether the removal protections shielding SEC administrative law judges from dismissal are unconstitutional. The Court also did not formally overrule Atlas Roofing Co. v. OSHA Review Commission, leaving its future scope uncertain.
Concurrences and dissents
Concurrence — Justice Gorsuch
Justice Gorsuch agreed with the majority but wrote separately to show that Article III and the Fifth Amendment's Due Process Clause independently require the same result. He drew a detailed historical parallel between modern SEC in-house proceedings — where the same agency investigates, prosecutes, and adjudicates — and the British colonial vice-admiralty courts whose juryless proceedings were a central grievance of the American Revolution. He also criticized the Court's prior decision in Atlas Roofing as a departure from constitutional tradition that later cases, especially Granfinanciera, substantially cabined.
Dissent — Justice Sotomayor
Justice Sotomayor argued that a long, unbroken line of precedent — capped by the unanimous 1977 decision in Atlas Roofing — squarely held that when Congress creates new statutory obligations and assigns civil penalty enforcement to an agency, the Seventh Amendment does not require a jury trial. She contended that the government's securities fraud claims are 'public rights' because the SEC acts in its sovereign capacity to vindicate harm to the public, not to resolve a dispute between private parties. She warned that the majority's ruling threatens the constitutionality of civil penalty enforcement schemes at more than two dozen federal agencies.
How the Court got there
The legal reasoning, step by step
- The Seventh Amendment guarantees jury trials in 'suits at common law' — broadly interpreted to cover any civil claim that is 'legal in nature,' not just suits that existed at the founding. The most important factor in deciding whether a claim is 'legal' is the remedy being sought, since some causes of action sound in both law and equity.
- The SEC's civil penalties are 'legal' rather than equitable because they are designed to punish and deter, not to restore what victims lost. The statutory penalty tiers are calibrated by the defendant's culpability, recidivism, and need for deterrence — not by actual investor harm — and the SEC is not required to return any collected money to victims. Historically, only courts of law could impose that kind of punitive monetary sanction.
- The securities antifraud claims are also 'legal in nature' because they closely track common law fraud: both target misrepresentation and concealment of material facts, and Congress deliberately borrowed 'fraud' and related common law terms when drafting the statutes. This creates an enduring link between federal securities fraud and its common law ancestor that confirms the legal character of the action.
- Having found the Seventh Amendment applies, the Court asked whether the 'public rights' exception — which permits Congress to assign certain matters to agencies without a jury — covers this case. Public rights are a narrow, historically grounded category, including revenue collection, customs enforcement, immigration, administration of public lands, and patent grants: areas the political branches have traditionally controlled entirely, without any court involvement in initial adjudication.
- Securities fraud enforcement fits none of those recognized categories. Courts of law have handled fraud claims since before the founding, and Congress itself still authorizes the SEC to file these cases in federal court. The Court's 1989 ruling in Granfinanciera v. Nordberg — which held that fraudulent conveyance claims in bankruptcy court required juries because they were 'quintessentially suits at common law' — effectively controls here by the same logic.
- The SEC's counterarguments fail on two fronts. Congress cannot eliminate jury rights simply by recasting a common law claim as a new statutory cause of action and assigning it to an agency — that would let Congress 'conjure away the Seventh Amendment' at will. And the government's role as the prosecuting party does not automatically trigger the public rights exception; what matters is the substance of the claim, not who brings it or how it is labeled.
Doctrinal impact
Cases affected by this decision
Reaffirms Granfinanciera, S. A. v. Nordberg (492 U. S. 33)
Confirmed as the controlling authority: fraud-like common law claims cannot be stripped of jury rights by routing them to an agency.
Distinguishes Atlas Roofing Co. v. Occupational Safety and Health Review Comm'n (430 U. S. 442)
Held inapplicable because OSHA claims were genuinely unknown to the common law, unlike the securities fraud claims here.
Reaffirms Tull v. United States (481 U. S. 412)
Reaffirmed as the analytical framework for deciding whether a statutory claim triggers the Seventh Amendment jury-trial right.