The Supreme Court, in a ruling on Thursday, declared that the U.S. Securities and Exchange Commission (SEC) violates the Seventh Amendment’s right to a jury trial by utilizing in-house proceedings to impose civil penalties for securities fraud. The case involved George Jarkesy Jr. and his firm, Patriot28 LLC, who were accused of securities fraud by the SEC. Instead of taking the matter to federal courts, the SEC chose to handle it internally, resulting in a $300,000 penalty against Jarkesy and Patriot28. However, the Fifth Circuit overturned the SEC’s order, stating that conducting such cases in-house infringes upon the defendants’ right to a jury trial as guaranteed by the Seventh Amendment.
The Supreme Court upheld this decision, emphasizing that defendants accused of securities fraud and facing civil penalties are entitled to a jury trial under the Seventh Amendment. This ruling challenges the SEC’s practice of bypassing federal courts and jury trials in favor of its own administrative proceedings. The court highlighted that historically, such internal proceedings should be conducted before an independent judge and jury, especially in cases involving civil penalty suits similar to common law fraud. This ruling underscores the significance of preserving traditional judicial processes and protecting constitutional rights in regulatory enforcement actions.
