Governance Briefing — June 27, 2024
The U.S. Supreme Court held in SEC v. Jarkesy that the Seventh Amendment requires jury trials for civil fraud penalties, limiting the SEC's use of in-house administrative proceedings.
Executive briefing: The U.S. Supreme Court decided SEC v. Jarkesy on June 27, 2024, ruling 6-3 that the Securities and Exchange Commission cannot seek civil penalties for securities fraud in administrative proceedings because the Seventh Amendment guarantees defendants a jury trial. The decision restricts the SEC's ability to adjudicate major enforcement actions before administrative law judges and requires the agency to bring many cases in federal district court.
Key holdings
- Seventh Amendment. Civil penalty actions for securities fraud are "suits at common law" requiring jury trials, making administrative adjudication unconstitutional.
- Public rights doctrine. The Court rejected the argument that securities fraud enforcement falls within the public-rights exception that would permit agency adjudication without juries.
- Remedial impact. The SEC must litigate many enforcement actions in federal courts, affecting case timelines, discovery, and settlement leverage.
Operational priorities
- Enforcement strategy. Public companies and registrants should anticipate more SEC investigations culminating in federal court filings and prepare for broader discovery obligations.
- Governance updates. Boards should review whistleblower, disclosure, and documentation controls to withstand expanded judicial scrutiny.
- Resource planning. Legal and compliance teams need to budget for longer litigation timelines and potential venue changes in ongoing matters.
Program assurance
- Case inventory. Assess current SEC matters to determine whether the agency may transition proceedings to federal court or adjust settlement positions.
- Training. Brief executives and control owners on evidentiary requirements in jury trials, emphasizing documentation quality and testimony preparation.
- Policy alignment. Update enforcement response playbooks to reflect new procedural milestones, including jury demand strategies and coordination with insurers.
Sources
Zeph Tech is advising clients on SEC enforcement readiness after Jarkesy by revising litigation playbooks, documentation practices, and disclosure governance.