The Supreme Court held Thursday that when the Securities and Exchange Commission (SEC) is seeking civil penalties against a defendant, the agency’s use of in-house judges violates the right to a jury trial guaranteed in the Constitution.
When Congress passed the Dodd-Frank Act in 2010, it gave the agency the option to adjudicate enforcement actions in-house using its own administrative law judges (ALJ), rather than in the federal courts. George R. Jarkesy, who became tied up in the SEC’s in-house proceedings after he was charged in 2013 with fraud relating to his investment activities, challenged this practice.
In a 6-3 ruling, the justices held in SEC v. Jarkesy that defendants under the Seventh Amendment are entitled to a jury trial when the SEC seeks civil penalties against them.
“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Chief Justice John Roberts wrote in the ruling. “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 said in a statement that the ramifications of his victory “are so much bigger than one person.”
“If this could happen to me it could happen to any citizen of this country and after a decade of gross misconduct and blatantly unconstitutional political attacks from the SEC and their in house court, today the United States Supreme Court ruled that the Constitution still matters,” he said in a statement.
WASHINGTON, DC – JUNE 14: The U.S. Supreme Court Building stands on June 14, 2024 in Washington, DC. (Photo by Anna Moneymaker/Getty Images)
The Fifth Circuit previously held in 2022 the SEC’s in-house adjudication violated Jarkesy’s Seventh Amendment right to a jury trial. Additionally, the panel held that removal restrictions on ALJs were unconstitutional and said Congress “unconstitutionally delegated legislative power to the SEC” when it allowed the agency to choose whether to initiate proceedings in-house or in the federal courts.
In a dissent joined by Justices Elena Kagan and Ketanji Brown Jackson, Justice Sonia Sotomayor wrote that the majority failed to “act as a neutral umpire when it rewrites established rules.” (RELATED: Supreme Court Rejects Purdue Pharma Opioid Settlement Shielding Sackler Family From Lawsuits)
“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,” Sotomayor wrote. “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.”
In April 2023, the Supreme Court held that individuals subject to SEC or Federal Trade Commission (FTC) complaints can bring their constitutional challenges directly to federal court, instead of going through the agency’s administrative proceedings.
“This is a day to rejoice!” New Civil Liberties Alliance (NCLA) Senior Litigation Counsel Peggy Little said in a statement. “The Supreme Court’s restoration of Americans’ constitutional guarantee of a right to be tried by a jury of their peers marks a historic declaration of independence from decades of encroachments by the administrative state. The Dodd-Frank Act’s attempt to extinguish Americans’ jury-trial protections by sweeping securities prosecutions into the SEC’s notoriously biased in-house courts—where agencies prevail 90-100% of the time—has come to a well-deserved end.”
This is a breaking news story and will be updated.
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