SEC v. Jarkesy Revisions: 6/27/24
The Supreme Court ruled that when the SEC wants to impose civil penalties for securities fraud, it must bring the case before a jury in federal court — it cannot simply handle the matter through its own in-house administrative proceedings.
The decision restores full procedural protections for people facing government fraud charges and raises serious questions about civil-penalty enforcement schemes across dozens of federal agencies.
How it got here: The SEC adjudicated the fraud claims in-house; the Fifth Circuit vacated the agency's order as a Seventh Amendment violation; the Supreme Court agreed to hear the case and affirmed.
The Case in Depth
What happened
George Jarkesy, an investment adviser, and his firm Patriot28 raised about $24 million from 120 investors between 2007 and 2010. The SEC accused them of fraud — misrepresenting the funds' investment strategies, lying about who was auditing the funds and serving as prime broker, and inflating the funds' value to collect larger management fees. The SEC chose to handle the enforcement action through its own internal proceedings before one of its administrative law judges, where no jury was available, and ultimately levied a $300,000 civil penalty.
The question before the Court
Can the SEC force someone accused of securities fraud to defend themselves in the agency's own internal proceedings — with no jury — rather than in federal court?
The Court's answer
No — the Seventh Amendment requires the SEC to pursue civil-penalty claims for securities fraud in federal court before a jury, not in its own administrative tribunals.
The Court reached this in two steps. First, the civil penalties the SEC sought are designed to punish and deter wrongdoers — not merely compensate victims — making them the kind of remedy historically available only in courts of law. Federal securities fraud also closely mirrors common law fraud in its elements and legal terminology, confirming the claims are "legal in nature" and trigger the Seventh Amendment. Second, the "public rights" exception — which can allow Congress to assign certain matters to agencies without juries — did not apply. That exception covers a narrow, historically defined set of categories like tax collection and customs enforcement; fraud suits against private individuals are "matters of private right" that the Constitution requires to be decided in court, regardless of how Congress labels them.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
People and companies accused of securities fraud by the SEC can now demand a jury trial in federal court, with an independent judge, full discovery rights, and standard rules of evidence. The SEC loses the procedural advantages of its own in-house system — where it acts as prosecutor, judge, and fact-finder — and must compete in the same courts available to any civil litigant.
What changes now
The case returns to lower courts, where the SEC's fraud charges against Jarkesy and Patriot28 must proceed in federal court before a jury. The Court expressly declined to resolve two other constitutional issues the Fifth Circuit had addressed — whether the SEC's forum-selection authority violates nondelegation principles, and whether the removal protections for SEC administrative law judges violate separation of powers — leaving those questions open. Other federal agencies with similar civil-penalty enforcement schemes may face challenges under this ruling.
What this does not decide
The Court did not decide whether the SEC's discretion to choose between federal court and in-house adjudication violates the nondelegation doctrine, or whether insulating SEC administrative law judges from presidential removal violates separation of powers — both issues the Fifth Circuit resolved against the SEC. The ruling is limited to the Seventh Amendment jury-trial question.
Concurrences and dissents
Concurrence — Justice Gorsuch
Justice Gorsuch wrote separately to argue that Article III and the Fifth Amendment's Due Process Clause independently require the same result as the Seventh Amendment. He drew vivid parallels to British colonial vice-admiralty courts — juryless tribunals that colonial officials preferred because they won there more often — and said the Founders adopted all three constitutional provisions together specifically to prevent their recurrence. He also criticized Atlas Roofing as a historical outlier inconsistent with constitutional text and original meaning, and applauded the majority for returning to a more traditionally grounded view of public rights.
Dissent — Justice Sotomayor
Justice Sotomayor argued that Atlas Roofing and nearly two centuries of unbroken precedent squarely establish that Congress may assign the government's civil-penalty claims to administrative agencies without a jury when the government acts in its sovereign capacity. Granfinanciera — which the majority treats as controlling — addressed only private-party disputes in bankruptcy court, not government enforcement actions, and expressly reaffirmed Atlas Roofing for cases like this one. The dissent warned the ruling threatens the constitutionality of hundreds of federal statutes and the civil-penalty powers of dozens of agencies, and accused the majority of a 'power grab' that concentrates policymaking authority in the courts.
How the Court got there
The legal reasoning, step by step
- The Seventh Amendment guarantees jury trials in 'suits at common law.' To decide whether a claim triggers that right, courts ask two questions: does the cause of action resemble a historical common-law suit, and is the remedy the kind historically available only in courts of law? The Court has held that the remedy is the more important factor.
- The civil penalties at issue are punitive — they are calibrated to culpability, deterrence, and recidivism, not to the amount of harm a victim suffered, and the SEC is not required to return collected fines to injured investors. Because the penalties are designed to punish rather than restore the status quo, they are 'a type of remedy at common law that could only be enforced in courts of law,' bringing this action squarely within the Seventh Amendment.
- Federal securities fraud also closely mirrors common law fraud: both target misrepresentation and concealment of material facts, and Congress deliberately borrowed common law fraud's terminology when drafting the securities laws. This 'enduring link' between federal securities fraud and its common law ancestor confirms the claims are 'legal in nature,' independently reinforcing the Seventh Amendment analysis.
- Because the claims implicate the Seventh Amendment, the Court next asked whether the 'public rights' exception allows Congress to route them to an agency anyway. Public rights are a narrow, historically grounded category — tax collection, customs enforcement, immigration, administration of public lands, and the granting of public benefits — where the government historically acted without a court. Matters that are 'the subject of a suit at the common law' cannot be withdrawn from courts no matter how Congress labels them.
- The Court's 1989 ruling in Granfinanciera v. Nordberg (a bankruptcy fraud case) effectively controls: even when Congress assigns a statutory claim to a non-court tribunal, what matters is the substance of the action. Congress cannot 'conjure away the Seventh Amendment by mandating that traditional legal claims be taken to an administrative tribunal.' SEC antifraud claims mirror common law fraud and provide a punitive remedy available only in courts of law — making them matters of 'private right' that must go to an Article III court.
- Atlas Roofing Co. v. OSHRC (1977) — the SEC's primary precedent — is distinguishable because OSHA's cause of action was genuinely novel, unknown to the common law, resembling a detailed industrial building code rather than a fraud claim. The SEC's antifraud provisions, by contrast, are explicitly modeled on common law fraud and carry its legal principles with them. The 'new statutory scheme' carve-out in Atlas Roofing therefore does not apply.
Doctrinal impact
Cases affected by this decision
Reaffirms Granfinanciera, S. A. v. Nordberg (492 U.S. 33)
Reaffirmed as the controlling framework: Congress cannot route traditional legal claims to agency tribunals to avoid jury trials.
Reaffirms Tull v. United States (481 U.S. 412)
Reaffirmed that civil penalties are a remedy at common law requiring jury adjudication when sought in federal court.
Distinguishes Atlas Roofing Co. v. Occupational Safety and Health Review Comm'n (430 U.S. 442)
Distinguished because OSHA created a wholly new cause of action unknown to common law; SEC antifraud claims are modeled on common law fraud.