Securities and Exchange Commission v. Jarkesy


Does the Securities and Exchange Commission’s choice of enforcement proceedings violate the Seventh Amendment or nondelegation doctrine, and does the for-cause removal of Administrative Law Judges violate Article II of the United States Constitution?

Oral argument: 
November 29, 2023

This case asks the Supreme Court to decide whether the Securities and Exchange Commission’s (“SEC”) power to adjudicate securities fraud claims violates the Seventh Amendment or nondelegation doctrine, and if the for-cause removal protections for Administrative Law Judges violate the Take Care Clause. The SEC argues that securities fraud actions only implicate public rights that do not require juries, that its power to choose between adjudicatory and court-based enforcement was created lawfully by Congress, and that the for-cause removal protections do not unduly interfere with the President’s power. Jarkesy counters that securities fraud claims are private rights that require juries, that the SEC’s choice of where to adjudicate enforcement actions unduly delegated legislative power, and that the for-cause protections interfere with Presidents’ ability to carry out their duties. The outcome of this case has serious implications for securities regulation, the workability of administrative enforcement actions, and public faith in federal adjudicatory institutions.

Questions as Framed for the Court by the Parties 

  1. Whether statutory provisions that empower the Securities and Exchange Commission to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment.
  2. Whether statutory provisions that authorize the SEC to choose to enforce securities laws through an agency adjudication instead of filing a district court action violate the nondelegation doctrine.
  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.


In 1934, Congress passed the Securities and Exchange Act of 1934 (“the Act”) creating the Securities and Exchange Commission (“SEC”). 15 U.S.C. 78d(a). Its primary purpose was to protect investors and ensure a fair and efficient market. Id. The SEC is comprised of five commissioners who are appointed by the President with the advice and consent of the Senate. Id. In 2010, the Supreme Court determined that commissioners can only be removed for cause, including willful violations of the Act. Free Enterprise Fund v. PCAOB at 22. Traditionally, the SEC enforced securities laws through civil actions in federal district courts. 15 U.S.C. 77t. In the wake of the 2008 financial crisis, Congress amended the Act, allowing the SEC to choose to penalize securities fraud through administrative enforcement proceedings in addition to those civil actions. §§ 929M, 929N. During these administrative proceedings, the SEC acts as both the prosecutor and the judge. Jarkesy v. SEC at 1.

In 1946, Congress passed the Administrative Procedure Act which permits agencies to hire Administrative Law Judges (“ALJ”) to adjudicate administrative hearings. 5 U.S.C. 3105. During these proceedings, ALJs receive evidence, hear argument, and issue initial decisions on liability. 5 U.S.C. 556(c). ALJs, unlike trial judges, who operate according to Federal Rules of Civil Procedure, perform these functions under the published procedural rules of the agency. Id. ALJs may only be removed by the Commission if the Merits Systems Protection Board finds good cause to do so. Jarkesy v. SEC at 27. After holding an administrative hearing where the SEC Division of Enforcement presents evidence of violations and the alleged violator presents their defense, ALJs make a binding ruling. 5 U.S.C. 556(c). Defendants may then appeal this ruling to the Commission 5 U.S.C. 557(b). On appeal, the Commission will review the ALJ’s legal conclusions and factual findings de novo. If the Commission issues a decision adverse to the violator they may appeal again—this time to a United States Court of Appeals. 15 U.S.C. § 78y.

In this case, George R. Jarkesy, Jr. established two hedge funds that served 100 investors and held $24 million in assets. Jarkesy v. SEC at 2. The SEC charged Jarkesy with misrepresentation of the funds’ parameters, safeguards, and assets to increase fees for investors. Id. Jarkesy sued the SEC in the U.S. District Court of Columbia to enjoin the agencies’ proceedings, but the District Court denied this request. Id. at 2-3. The District Court concluded that it lacked jurisdiction to hear the case and required Jarkesy to continue with the agencies’ proceedings. Id. at 2-3. The SEC then held an evidentiary hearing, and the ALJ concluded that Jarkesy committed multiple counts of securities fraud. Id. at 3. Jarkesy then sought a review of this conclusion by the Commission. Id. The Commission affirmed the conclusion that Jarkesy committed various forms of securities fraud, ordering Jarkesy to pay a civil fine of $300,000 and to disgorge $685,000 in illicit gains. Id.

The Fifth Circuit granted Jarkesy’s petition for review, vacated the SEC’s rulings, and remanded the matter to the Commission. Jarkesy v. SEC at 30. The Fifth Circuit held that the SEC’s choice of in-house adjudications violated the Seventh Amendment and the nondelegation doctrine, and that the ALJs for-cause removal process violated the Take Care Clause.

On March 08, 20223, the SEC filed a petition for a writ of certiorari on all three aspects of the Fifth Circuit’s ruling. Petition for a writ of certiorari. The United States Supreme Court granted certiorari on June 30, 2023.



The SEC argues that the Seventh Amendment does not prohibit it from adjudicating violations of its regulations without a jury. Brief for Petitioner, Securities and Exchange Commission (“SEC”) at 17–18. In support, the SEC asserts that juries are only required in cases that involve private rights, not public rights. Id. at 18. The SEC explains that public rights include cases where the Government acts as party “in its sovereign capacity” and when the government is implementing its legislative or regulatory regimes. Id. The SEC emphasizes that the Seventh Amendment only guarantees jury trials “in ‘Suits at common law,”’ not adjudications properly given to administrative agencies. Id. at 18–19. The SEC further maintains that the SEC adjudicates public rights when it enforces its regulations because those regulations are “new statutory obligations” that Congress assigned to the SEC. Id. at 21. The SEC proposes that this conception of public rights is squarely endorsed by Supreme Court precedent, namely Atlas Roofing Co. v. Occupational Safety and Health Review Comm’n, which endorsed agency adjudications of Congressionally created workplace safety laws. Id. The Court made this endorsement, the SEC says, even though a common law remedynegligence—is available to workers whose place of employment violates safety laws. Id. at 24–25. As such, the availability of a common law fraud action to victims of security fraud does not prevent the SEC from adjudicating securities fraud violations without a jury. Id.

In response, Jarkesy contends that the Seventh Amendment protects the right to jury trials for securities fraud claims. Brief for Respondent, Jarkesy at 12. Jarkesy asserts that the Seventh Amendment’s history determines when it applies, and history requires applying the jury trial right to claims surrounding statutory violations. Id. at 13. In support, Jarkesy points to the defendant’s jury trial right in traditional common law claims and the role that English violations of those traditional rights led towards shaping the American Revolution and the Framers’ ratification of the Seventh Amendment. Id. at 13, 16, 19. Jarkesy submits that the SEC’s distinction between private and public rights has no grounding in Framing-Era history because the Seventh Amendment was understood to provide a jury for “any claim not criminal, equitable or in admiralty.” Id. at 24. Instead, Jarkesy says, the proper distinction between private and public claims is that private claims rectify property rights and have a basis in the common law, while public claims are limited to cases where the government has granted a right or privilege. Id. at 31–32. Jarkesy concludes that securities fraud claims are private rights because they are designed to protect investors’ individual property rights and are firmly rooted in the common law, so the Seventh Amendment applies. Id. at 32, 35–36.


The SEC asserts that the nondelegation doctrine does not prevent Congress from allowing it to decide whether to bring a securities fraud claim in court or adjudicate it internally. See Brief for Petitioner, SEC at 34. The SEC explains that the nondelegation doctrine only prevents Congress from “unlawfully delegating legislative power.” Id. (emphasis added). The SEC contends that its decision on where to bring a given claim is solely a use of executive discretion, not legislative power. Id. at 34–35. In support, the SEC points out that the Supreme Court has exclusively applied the nondelegation doctrine in cases involving sweeping, legislation-like rules, not discretionary choice of forum decisions. Id. at 37. The SEC analogizes the current case to United States v. Batchelder, where the Court found that allowing the Executive Branch to choose between two different criminal statutes did not violate the nondelegation doctrine because the practice resembled the Executive’s everyday charging decisions. Id. at 38–39. Further, the SEC asserts that choosing between procedures with different defendant rights does not implicate the nondelegation doctrine. Id. at 43. As proof, the SEC argues that the Executive Branch frequently chooses between bringing civil claims and criminal charges, or between charging felonies and misdemeanors, which all greatly influence the procedural rights afforded to defendants. Id. at 43–44.

Jarkesy counters that the nondelegation doctrine prevents Congress from allowing the SEC to choose between bringing securities fraud claims in court or in adjudications. Brief for Respondent, Jarkesy at 47. Jarkesy agrees that the nondelegation doctrine prevents Congress from delegating its legislative authority, as reasserted since the Supreme Court’s earliest decisions, even if the nondelegation doctrine has shrunk over time. Id. at 47–48. However, Jarkesy says that the Supreme Court has squarely foreclosed Congress from assigning the SEC discretion on where to litigate securities fraud claims because “Congress’s assignment of new statutory enforcement actions under agency adjudication is among the ‘matters exclusively within its control.’” Id. at 50. Consequently, Jarkesy asserts, the SEC’s choice of where to litigate securities fraud constitutes a legislative power. Id. at 47. In support, Jarkesy submits that this choice is not like prosecutorial discretion because that discretion typically has no implication for the Constitutional rights afforded to a defendant. Id. at 51. In contrast, Jarkesy claims, the SEC’s decision to adjudicate claims or bring them in courts only affects the defendant’s Constitutional rights—rights which are properly left to a legislative determination. Id. Jarkesy concludes that the nondelegation doctrine is binding on Congress, so Congressional authorization of the SEC’s discretion is irrelevant to whether that discretion is permissible. Id.


The SEC argues that ALJs’s for-cause protections do not unduly interfere with the President’s power in violation of the Constitution’s Article II. Brief for Petitioner, SEC at 44–46. The SEC explains that in giving ALJs for-cause protection, Congress sought to balance protecting the ALJs’s independent judgment and ensuring that the SEC maintained control over its policies. Id. at 44–45. The SEC contends that Congress may grant for-cause protections to ALJs because the Supreme Court has repeatedly recognized that Congress may regulate Department Heads’ removal of “inferior executive officers,” like SEC ALJs. Id. at 46–47. The SEC maintains that ALJs’s for-cause removal protections do not “impermissibly burden the President’s power” as forbidden by Morrison v. Olson. Id. at 47. In support, the SEC says that ALJs face many checks on their authority, including the SEC’s ability to decline to provide an ALJ for an adjudication or the fact that the ALJs’ decisions are non-binding and appealable to the full Commission. Id. at 57–58. Further, the SEC points out that ALJs require less direct control from the President because of their “quasi-judicial character,” and that the for-cause provision at issue is less stringent than the standard struck down in Free Enterprise Fund v. Public Company Accounting Oversight Board (“PCAOB”). Id. at 55, 59–60. Finally, the SEC submits that the Merit Systems Protection Board (“MSPB”) does not make the final determination to remove an ALJ; it merely ensures that the SEC has “good cause” when removing an ALJ, so the MSPB’s own for-cause removal protections do not run afoul of Article II. Id. at 61–62.

Jarkesy retorts that that ALJs’s for-cause removal protections unconstitutionally interfere with Presidential control of their functions in violation of Article II, specifically the Take Care Clause. Brief for Respondent, Jarkesy at 52. Jarkesy points out that the SEC conceded that ALJs enjoy three levels of for-cause protection between the Commission, Merit Systems Protection Board (“MSPB”), and themselves. Id. at 53. Jarkesy contests that a similar multi-level protection structure was ruled unconstitutional in Free Enterprise Fund. Id. at 57. To further explain, Jarkesy offers that the Supreme Court has only allowed restrictions on the President’s removal power when those restrictions apply to (1) principal officers who lead an expert agency that does not “wield substantial executive power” and (2) “inferior officers with narrowly defined duties.” Id. at 56. Jarkesy claims that ALJs fall under neither of these categories because they do not have defined terms and they make high-level policy decisions. Id. at 58. Jarkesy submits that the SEC’s argument that the President must be “impermissibly burden[ed]” by a restriction is irrelevant to the constitutional analysis, even if removal protections are “best for the public interest.” Id. at 58–59. Jarkesy asserts that the SEC’s argument was explicitly rejected by the Supreme Court in Selia Law v. Consumer Financial Protection Bureau. Id. at 59. Jarkesy concludes that ALJs’s multiple levels of for cause protection violate the Take Care Clause because “The President’s removal power is the rule, not the exception.” Id.



The National Treasury Employees Union (“Union”), in support of the SEC, asserts that affirming the Fifth Circuit’s nondelegation or Seventh Amendment rulings would curtail the SEC’s ability to enforce American securities laws. Brief of Amici Curiae The National Treasury Employees Union, in Support of Petitioners at 9. The Union argues that SEC is effective and efficient in enforcing securities laws, given its ability to resolve cases twenty-seven times faster than district courts and collect $6.4 billion in penalties in the last fiscal year. Id. at 9–10. The North American Securities Administrators Association, Inc., (“NASAA”) contends that U.S. capital markets function effectively because the SEC confronts frauds and abuses through administrative enforcement. Brief of Amici Curiae The North American Securities Administrators Association, Inc., in Support of Petitioners at 79. NASAA argues that curtailing this enforcement power would weaken the ability of regulators to protect investors, the markets in general, and the public at large. Id. at 1618.

West Virginia and 17 Other States (“West Virginia”) counter that shifting the SEC’s enforcement to district courts will not harm securities regulation, since the SEC already has the option to bring matters in district courts. Brief of Amici Curiae State of West Virginia and 17 Other States, in Support of Respondents at 9. Furthermore, West Virginia argues that states will compensate for any lapse in enforcement action created by the increase of SEC district court litigation. Id. at 9–10. The Cato Institute criticizes the SEC’s efficiency because its procedural rules extend cases for excessive periods of time. Brief of Amici Curiae The Cato Institute, in Support of Respondents at 18. Despite guidelines governing the length of adjudications set by the SEC, the Cato Institute highlights that few cases adhere to these advisory guidelines. Id. at 18–19. Further, the Cato Institute maintains that the SEC’s rulings are self-interested, steer case law sympathetically towards the government, and unfairly prejudice private parties. Id. at 20.


The Federal Administrative Law Judges Conference (“Judges Conference”), in support of the SEC, argues that the for-cause removal protections for ALJs ensure public faith in agency adjudicatory processes. See Brief of Amici Curiae Federal Administrative Law Judges Conference, in Support of Petitioners at 29. The Judges Conference points out that the President already controls the appointments of ALJs who influence agency enforcement priorities. Id. at 2224. The Judges Conference argues that if the for-cause shield is removed, the President’s ability to indiscriminately fire ALJs would eliminate ALJs’s decisional independence and erode public trust in their adjudications. Id. at 2730. Given the presence of over 1,930 ALJs from more than thirty agencies, the Judges Conference contends that this outcome will impact millions of cases annually. Id. at 27.

Phillip Goldstein, Mark Cuban, Elon Musk, et al. (“Millionaires”), in support of Jarkesy, offer a fundamentally different view on faith in public institutions. Brief of Amici Curiae Philip Goldstein et al., in Support of Respondents at 8. The Millionaires argue that the SEC’s discretion of where to prosecute amounts to forum shopping, and this discretion actually erodes faith in our agencies. Id. Further, The Atlantic Legal Foundation, maintains that the SEC’s civil penalties disproportionately harm private parties who are prosecuted at agency hearings rather than in district court. Brief of Amici Curiae The Atlantic Legal Foundation, in Support of Respondents at 9. Lastly, the Chamber of Commerce of the United States argues that the for-cause removal protections for ALJs insulate them from the President and undermine the President’s ability to execute the law. Brief of Amici Curiae The Chamber of Commerce of the U.S. et al., in Support of Respondents at 2527.


Written by:

John Orona

Alexander Strohl

Edited by:

Yue (Wendy) Wu


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