Securities and Exchange Commission v. Jarkesy
 | |
| Securities and Exchange Commission v. Jarkesy | |
| Term: 2023 | |
| Important Dates | |
| Argued: November 29, 2023 Decided: June 27, 2024 | |
| Outcome | |
| United States Court of Appeals for the Fifth Circuit affirmed and remanded | |
| Vote | |
| 6-3 | |
| Majority | |
| Chief Justice John Roberts • Clarence Thomas • Samuel Alito • Neil Gorsuch • Brett Kavanaugh • Amy Coney Barrett | |
| Concurring | |
| Neil Gorsuch • Clarence Thomas | |
| Dissenting | |
| Sonia Sotomayor • Elena Kagan • Ketanji Brown Jackson | |
Securities and Exchange Commission v. Jarkesy is a U.S. Supreme Court case decided 6-3 on June 27, 2024, concerning the constitutionality of administrative enforcement proceedings of the Securities and Exchange Commission (SEC). The Supreme Court held that when the SEC seeks civil penalties against defendants for securities fraud the defendant is entitled to a trial by jury under the Seventh Amendment.
The case was argued before the Supreme Court of the United States on November 29, 2023, during the court's October 2023-2024 term.[1]
3. Whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection."[2]
The case came on a writ of certiorari to the United States Court of Appeals for the Fifth Circuit. To review the lower court's opinion, click here.
Why it matters: The court’s decision in the case determined that defendants are entitled to a jury trial under the Seventh Amendment when the SEC seeks civil penalties for securities fraud. The decision impacts the structure of the SEC’s adjudication and enforcement proceedings.
Timeline
The following timeline details key events in this case:[3]
- June 27, 2024: The U.S. Supreme Court affirmed and remanded the decision of the United States Court of Appeals for the Fifth Circuit.
- November 29, 2023: The U.S. Supreme Court heard oral argument.
- June 30, 2023: The U.S. Supreme Court agreed to hear the case.
- March 08 2023: The Securities and Exchange Commission appealed to the U.S. Supreme Court.
- May 18, 2022: The United States Court of Appeals for the Fifth Circuit vacated and remanded the decision of the SEC.
Background
| Administrative State |
|---|
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| Five Pillars of the Administrative State |
| • Judicial deference • Nondelegation • Executive control • Procedural rights • Agency dynamics |
| Click here for more coverage of the administrative state on Ballotpedia |
The Securities and Exchange Commission (SEC) is an independent federal agency established in 1934 to regulate the nation’s securities industry. The SEC is charged with enforcing federal securities laws and drafting regulations for the securities industry. The commission can enforce statutes through administrative enforcement proceedings or by bringing a civil action in district court.
The SEC brought an administrative proceeding against George Jarkesy and his advisory firm, Patriot28, in 2013 for violating securities laws with their management of two hedge funds. Jarkesy sued the SEC in the United States District Court for the District of Columbia on the grounds that the agency’s structure violated the Constitution. The district court dismissed the case.[2]
The SEC continued with the administrative proceedings and assigned the case to an administrative law judge (ALJ) who found that Jarkesy and Patriot28 had violated securities laws. The commission reviewed the decision and determined that Jarkesy and his advisory firm had violated the Securities Act, Exchange Act, and Advisers Act. The respondents were ordered to pay $300,000 in civil penalties and to cease and desist from their violations.[2][4]
Jarkesy appealed to the United States Court of Appeals for the Fifth Circuit. A divided panel held that the SEC’s ALJs’ two layers of removal protections unconstitutionally insulated them from presidential oversight; that the agency’s adjudication proceedings violated the Seventh Amendment right to a jury trial; and that Congress unconstitutionally delegated legislative power to the SEC by failing to provide the agency with an intelligible principle to guide its enforcement actions.[4]
The United States Supreme Court agreed to hear the case in the October 2023-2024.
Questions presented
The petitioner presented the following questions to the court:[2]
Questions presented:
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Oral argument
Audio
Audio of oral argument:[6]
Transcript
Transcript of oral argument:[7]
Outcome
The court ruled 6-3 that when the SEC seeks civil penalties against defendants for securities fraud the defendant is entitled to a trial by jury under the Seventh Amendment. It affirmed and remanded the United States Court of Appeals for the Fifth Circuit ruling.
Chief Justice John Roberts delivered the opinion of the court, joined by Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett. Justice Neil Gorsuch filed a concurring opinion, joined by Justice Clarence Thomas. Justice Sonia Sotomayor filed a dissenting opinion, joined by Justices Elena Kagan and Ketanji Brown Jackson.[1]
Opinion
Opinion of the court
Chief Justice John Roberts delivered the opinion of the court, which argued that civil penalties sought by the SEC should be enforced in a court of law, which implicates defendants’ Seventh Amendment right to a jury trial:[8]
| “ |
[T]he civil penalties in this case are designed to punish and deter, not to compensate. They are therefore ‘a type of remedy at common law that could only be enforced in courts of law.’ Ibid. That conclusion effectively decides that this suit implicates the Seventh Amendment right, and that a defendant would be entitled to a jury on these claims.[5] |
” |
Roberts continued, arguing that the agency’s adjudication and enforcement proceedings violate the separation of powers:[8]
| “ |
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.[5] |
” |
Concurring opinion
Justice Neil Gorsuch filed a concurring opinion, joined by Justice Clarence Thomas. Gorsuch argued that the court’s ruling is also based on other constitutional provisions including the due process clause and Article III:[8]
| “ |
I write separately to highlight that other constitutional provisions reinforce the correctness of the Court’s course. The Seventh Amendment’s jury-trial right does not work alone. It operates together with Article III and the Due Process Clause of the Fifth Amendment to limit how the government may go about depriving an individual of life, liberty, or property. The Seventh Amendment guarantees the right to trial by jury. Article III entitles individuals to an independent judge who will preside over that trial. And due process promises any trial will be held in accord with time-honored principles. Taken together, all three provisions vindicate the Constitution’s promise of a ‘fair trial in a fair tribunal.’[5] |
” |
Dissenting opinion
Justice Sonia Sotomayor filed a dissenting opinion, joined by Justices Elena Kagan and Ketanji Brown Jackson. Sotomayor argued that the majority’s opinion does not align with court precedent and threatens the separation of powers:[8]
| “ |
Beyond the majority’s legal errors, its ruling reveals a far more fundamental problem: This Court’s repeated failure to appreciate that its decisions can threaten the separation of powers. Here, that threat comes from the Court’s mistaken conclusion that Congress cannot assign a certain public-rights matter for initial adjudication to the Executive because it must come only to the Judiciary.
The majority today upends longstanding precedent and the established practice of its coequal partners in our tripartite system of Government. Because the Court fails to act as a neutral umpire when it rewrites established rules in the manner it does today, I respectfully dissent.[5] |
” |
Text of the opinion
Read the full opinion here.
Commentary about the case
This section provides a selection of commentary regarding the Securities and Exchange Commission v. Jarkesy hearings and decision.
Pre-decision commentary
Devon Ombres, senior director of courts and legal policy at the Center for American Progress argued that the decision in SEC v. Jarkesy could, in their view, have negative implications for agency authority:[9]
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Lawyers Jeremiah Williams and Rory Skowron with Ropes & Gray wrote an article in Bloomberg Law about what they viewed as potential implications of SCOTUS’ decision, in which they argued:[10]
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Attorney for the Pacific Legal Foundation Adam F. Griffin wrote in The Federalist Society that the case should be resolved using the private-rights/public-rights doctrine:[11]
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The editorial board for The Wall Street Journal wrote an opinion piece in favor of Jarkesy arguing:[12]
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Post-decision commentary
Former Assistant Regional Director for Enforcement at the SEC Fort Worth Regional Office Scott Mascianica argued that the Supreme Court failed to rule on questions of the constitutionality of administrative law judges with its ruling, stating:[13]
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New York University School of Law Professor Noah Rosenblum contended in an article for The Atlantic that while the effects of the Jarkesy decision may not be immediately apparent, agencies may either enforce higher prosection penalties to compel plea bargains or instead seek fewer enforcement actions going forward. He argued:[14]
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Editors of the National Review argued that the Jarksey decision restored the founding fathers’ intent for the separation of powers. They contended:[15]
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Law firm GreenbergTraurig argued that the Jarksey decision brings into question other administrative agencies’ enforcement capabilities. It contended:[16]
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Impact
- See also: Securities and Exchange Commission
The decision in SEC v. Jarkesy determined that defendants are entitled to a jury trial under the Seventh Amendment when the SEC seeks civil penalties for securities fraud. The decision impacts the structure of the SEC’s adjudication and enforcement proceedings by prohibiting the SEC from handling securities fraud cases through its in-house adjudication process.
The Supreme Court did not address the other two questions presented in the case, challenging the constitutionality of the SEC’s administrative law judges and whether the SEC’s adjudicatory process violates the nondelegation doctrine.[17]
October term 2023-2024
The Supreme Court began hearing cases for the term on October 2, 2023. The court's yearly term begins on the first Monday in October and lasts until the first Monday in October the following year. The court generally releases the majority of its decisions in mid-June.[18]
See also
External links
- Search Google News for this topic
- U.S. Supreme Court docket file - Securities and Exchange Commission v. George R. Jarkesy, Jr. (petitions, motions, briefs, opinions, and attorneys)
- SCOTUSblog case file for Securities and Exchange Commission v. Jarkesy
Footnotes
- ↑ 1.0 1.1 SCOTUSblog, "Securities and Exchange Commission v. Jareksy," accessed June 27, 2024
- ↑ 2.0 2.1 2.2 2.3 U.S. Supreme Court, "22-859 SECURITIES AND EXCHANGE COMMISSION V. JARKESY QUESTION PRESENTED," CERT. GRANTED June 30, 2023
- ↑ U.S. Supreme Court, "Securities and Exchange Commission v. George R. Jarkesy, Jr.," accessed July 3, 2023
- ↑ 4.0 4.1 SCOTUSblog, "Another federal agency challenges adverse ruling by 5th circuit," March 31, 2023
- ↑ 5.00 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11 5.12 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ Supreme Court of the United States, "Oral Argument - Audio," argued November 29, 2023
- ↑ Supreme Court of the United States, "Oral Argument - Transcript," argued November 29, 2023
- ↑ 8.0 8.1 8.2 8.3 Justia, "SEC v. Jarkesy, 603 U.S. _ (2024)," accessed June 27, 2024
- ↑ Center for American Progress, "SEC v. Jarkesy: The Threat to Congressional and Agency Authority," July 2, 2024
- ↑ Bloomberg Law, "SEC In-House Judge Case Has Major Implications for Federal Courts," July 2, 2024
- ↑ The Federalist Society, "Simple Rules for Jarkesy v. SEC in a Complex Administrative World," July 2, 2024
- ↑ The Wall Street Journal, "The Supreme Court Considers the Right to Trial by Jury," July 2, 2024
- ↑ Thomson Reuters, “Supreme Court Sidesteps Broader Questions on SEC Judge Constitutionality in ‘Pointed’ Jarkesy Ruling,” July 2, 2024
- ↑ The Atlantic, “The Supreme Court Won’t Stop Dismantling the Government’s Power,” July 2, 2024
- ↑ National Review, “The Administrative State Is Put Back in Its Constitutional Place,” July 2, 2024
- ↑ ‘’GreenbergTraurig,’’ “SEC v. Jarkesy: A Groundbreaking Supreme Court Decision with Significant Implications for Securities Enforcement,” July 2, 2024
- ↑ SCOTUSblog, "Justices limit major SEC tool to penalize fraud," June 28, 2024
- ↑ SupremeCourt.gov, "The Supreme Court at Work: The Term and Caseload," accessed January 24, 2022
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