SEC Precluded From Seeking Penalty in Administrative Action

The Securities and Exchange Commission suffered a significant loss in the Supreme Court today. The High Court held that those charged with fraud by the agency have a right to a jury trial under the Seventh Amendment to the U.S. Constitution. The ruling precludes the agency from filing an enforcement action based on fraud and then adjudicating the case in one of its in-house administrative proceedings.

Rather, the case must be filed in federal court where those charged with wrong doing have the right to obtain a trial before a jury. The Court’s decision in SEC v. Jarkesy, No. 23-859 (Decided June 27, 2024) thus brings to an end a long running battle between the SEC and those charged with fraud in an administrative proceeding. While the SEC still has the right to bring fraud charges in one of its in-house administrative actions, it will not be able to seek or obtain a monetary penalty as a remedy. The Jarkesy ruling thus represents a significant loss for the SEC. The ruling is also likely to impact enforcement proceedings filed by other federal agencies based on fraud charges.