Supreme Court Says SEC Civil Enforcement Targets Entitled to Jury Trial

The Supreme Court, affirming a decision from the Fifth Circuit, has ruled that SEC civil enforcement targets have a Seventh Amendment right to a jury trial. Attorney John Kerkhoff, from law firm Benesch, calls the decision in SEC v. Jarkesy “a major blow to Securities and Exchange Commission enforcement proceedings.” 

A key question for the Court, according to Kerkhoff, was whether the imposed remedy was intended to restore the status quo, or, alternatively, to punish or deter. The latter suggests a jury trial. 

Kerkhoff acknowledges it’s too early to know the reach of this case with regard to the internal tribunals in other agencies. The Consumer Product Safety Commission, for example, does not impose civil penalties through an in-house process, and other agencies use internal tribunals only to impose equitable remedies. “Jarkesy,” he writes, “does not necessarily foreclose such enforcement.”

This case arose after the SEC, alleging securities fraud, sued George Jarkesy in a proceeding before its own internal tribunal. There was no jury, the matter was overseen by an administrative judge who works for the SEC, and the defendant’s initial appeal then went before the same SEC commissioners who had voted to file the initial complaint.  

Kerkhoff also notes that, with regard to other agencies with similar procedures. as well as the SEC, this case “does not necessarily strip the agencies of enforcement power.” However, forcing them to bring enforcement initiatives to federal courts will tax their resources and thus serve as a damper, even as in some cases it could make the target more likely to settle.

“Regardless of any uncertainty,” Kerkhoff concludes, SEC civil enforcement targets “should be prepared to raise their jury right arguments.”