Supreme Court Decision in SEC v. Jarkesy Could Have Far-Reaching Regulatory Implications

The recent U.S. Supreme Court decision in SEC v. Jarkesy has sent shockwaves through the regulatory landscape, potentially jeopardizing agencies’ ability to enforce regulations through administrative proceedings. The Court’s ruling, which found that the Securities and Exchange Commission (SEC) cannot adjudicate civil penalties in-house without violating the Seventh Amendment’s right to a jury trial, has far-reaching implications for regulatory enforcement across the board.

The decision hinges on the distinction between legal and equitable claims, with the Court determining that SEC civil penalties fall into the legal category due to their punitive nature. This ruling not only impacts the SEC’s ability to impose civil penalties administratively but also raises questions about other agencies’ authority to enforce regulatory violations through administrative adjudications.

While the immediate impact on the SEC may be limited, as they can still seek civil penalties in federal court, other agencies that rely on administrative adjudications for enforcement may face significant challenges. The Court’s decision could potentially render agencies without the authority to impose civil penalties in administrative proceedings, unless Congress amends their statutes to allow for federal court jurisdiction.

Furthermore, the implications of the Jarkesy decision extend beyond civil penalties to other regulatory remedies such as injunctions, asset disgorgement, and license revocations. The Court’s ruling raises questions about the constitutionality of agency adjudications more broadly, as it calls into question the public rights exception that allows Congress to assign regulatory claims to agencies for adjudication.

In the wake of the Jarkesy decision, the future of agency adjudication remains uncertain. The Court’s historic retrenchment in striking down a federal law assigning adjudicatory authority to an agency sets a precedent that could have far-reaching consequences for regulatory enforcement. The ultimate impact of the decision will depend on how future cases interpret and apply the public rights exception, leaving the regulatory landscape in a state of flux.