by Andrew J. Ceresney, Charu A. Chandrasekhar, Arian M. June, Robert B. Kaplan, Julie M. Riewe, Kristin A. Snyder, and Jonathan R. Tuttle
Top left to right: Andrew J. Ceresney, Charu A. Chandrasekhar, Arian M. June, and Robert B. Kaplan. Bottom left to right: Julie M. Riewe, Kristin A. Snyder, and Jonathan R. Tuttle. (Photos courtesy of Debevoise & Plimpton LLP)
Recently, in a long-awaited ruling with significant implications for the securities industry and administrative agencies more generally, the U.S. Supreme Court affirmed the Fifth Circuit’s decision in Jarkesy v. SEC, holding that the Seventh Amendment right to a jury trial precluded the U.S. Securities and Exchange Commission (the “SEC”) from pursuing monetary penalties for securities fraud violations through in-house administrative adjudications. The key takeaways are:
- The Court’s ruling was limited to securities fraud claims, but other SEC claims seeking legal remedies may be impacted, as well as claims by other federal agencies that may have been adjudicated in-house previously.
- We expect that the SEC will continue its practice of bringing new enforcement actions in district court, except when a claim only is available in the administrative forum.
- Because of the majority decision’s focus on fraud’s common-law roots, the decision raises questions about whether the SEC may bring negligence-based or strict liability claims seeking penalties administratively.
- The Court did not resolve other constitutional questions concerning the SEC’s administrative law judges, including whether the SEC’s use of administrative proceedings violates the non-delegation doctrine and whether the SEC’s administrative law judges are unconstitutionally protected from removal in violation of Article III.
- We anticipate additional litigation regarding these unresolved issues.
