SEC v. Jarkesy (2024) and the Future of Administrative Adjudication

This article explores a recent ruling where the Supreme Court placed restrictions on the Securities and Exchange Commission, arguing that its procedures of in-house adjudication violated the Constitution. By checking the power of this administrative agency, the Supreme Court protected the Seventh Amendment rights of Americans.

Introduction

In Federalist 47, James Madison wrote that “the accumulation of all powers, legislative, executive, and judiciary, in the same hands… may justly be pronounced the very definition of tyranny.” While this might sound like a far-fetched theoretical concern, many administrative agencies in the United States possessed all three powers for decades, until two recent Supreme Court rulings checked their expansive authority. 

Last year, the Court made headlines by overturning the Chevron doctrine in Loper Bright v. Raimondo, 603 U.S. 369 (2024). Its ruling in SEC v. Jarkesy, 603 U.S. ___ (2024), despite having similar implications, remained relatively obscure. These rulings mark a significant turning point in Supreme Court jurisprudence vis-à-vis administrative agencies. 

What Happened in SEC. v. Jarkesy

This appeal resulted from the conviction of hedge fund manager and talk-show host George Jarkesy by the United States Securities and Exchange Commission (SEC) for securities fraud. Jarkesy’s conviction occurred via in-house adjudication— a process whereby an agency brings the accused before judges which the agency has, itself, employed. These administrative law judges (ALJs) evaluate the cases and issue retrospective, binding rulings.

In previous rulings, like Lucia v. SEC, 585 U.S. ___ (2018),  and Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), the Supreme Court expressed concern over the employment and insulation of ALJs, respectively. In Lucia, the Court ruled that ALJs for the SEC, who were being hired directly by the agency itself, violated the Appointments Clause, U.S. Const. art. II, § 2, cl. 2, and had to be appointed by the executive branch. In Free Enterprise Fund, the Court ruled that ALJs were unconstitutionally insulated from removal. 

Staying consistent with their critical view of ALJs, the Court ruled in SEC v. Jarkesy that in-house adjudication in its entirety violated the Seventh Amendment. Essentially, the charges leveled against Jarkesy were considered by the Court to be civil fraud, and therefore the Seventh Amendment, which establishes rights in civil trials, applied to the matter. This required the charges to be heard by an Article III court— i.e., a court established by Article III of the Constitution.

These include the Supreme Court, and all other federal courts established by Congress. Notably, these courts are bound by strict procedural requirements including the Seventh Amendment. In civil controversies, including cases of fraud, the accused has the right to a trial by jury. By not allowing the SEC to conduct in-house adjudications, the Court protected the rights of accused individuals, and restricted the ability of the SEC to exercise unconstitutional judicial power through ALJs. 

The Broader Context

The Court’s decision in Jarkesy reflects a heavy shift in its jurisprudence, specifically in the direction of dismantling the “administrative arms” of the executive branch. Before its decision in Jarkesy, the Court made headlines by overturning the Chevron doctrine, which allowed executive agencies to have the final say when interpreting their own regulations. Under the Chevron doctrine, which was in effect for around forty years, courts were required to accept agency interpretations unless they were deemed “unreasonable.” Having to meet this vague threshold of unreasonableness ultimately limited the ability of courts to exercise appropriate judicial review of executive and legislative actions. 

This push against executive agencies comes along with widespread criticism of the “administrative branch” among ideologically conservative justices. In a book released shortly after his appointment by President Trump in 2016, Justice Neil Gorsuch explains these concerns. He argues that these agencies effectively possess all three powers of government.

They enact regulations— a legislative power; they enforce their regulations— an executive power; and they interpret their regulations, employing their own judges to evaluate the cases— two judicial powers. As a judge, Gorsuch is most concerned about what he sees as judges abdicating their duty to interpret the law by bowing to the agencies’ own interpretations. However, he condemns the entire scheme as a blatant violation of the separation of powers. 

Notably, the Court is not alone in its newly adopted approach to these agencies. The Department of Governmental Efficiency (DOGE), established via executive order by President Trump, has taken up the mantle of reducing the size of government. Since its creation in January 2025, the department— ironically led by the unelected billionaire Elon Musk— has consistently cut funding and employment across the federal bureaucracy in an effort to curb federal spending and address corruption. Importantly, while DOGE applies similar reasoning to the Court when it comes to administrative agencies, its methods of achieving change are vastly different, and they cannot be considered political allies. 

Implications on Administrative Adjudication

The Court’s ruling in Jarkesy, despite having significant implications for the future of administrative agencies, has had little practical effect on the procedures of the SEC. In recent years, because in-house adjudication became a constitutionally questionable practice, to say the least, the SEC became relatively conservative in its use of ALJs. The Court’s decision to officially disallow the practice therefore did not require the SEC to make any big changes. 

Regardless, the ruling has groundbreaking implications, going forward, for the field of administrative law. Despite being specifically confined to securities fraud cases prosecuted by the SEC, the ruling in Jarkesy strongly indicates that the Court will likely continue striking down statues that grant broad authority to regulatory agencies and departments. For bodies that still retain broad powers in terms of regulatory enforcement, like the EPA and the FTC, this signals an impending restriction of power. 

Conclusion

The Court’s ruling in Jarkesy protects our Seventh Amendment rights, guaranteeing those facing securities fraud charges from the SEC the right to a fair trial, as demanded by the Constitution. In the coming years, we can expect to see many more rulings of this nature as the federal judiciary reins in the judicial powers that the other branches have effectively given to themselves.

Image Source: Boston Globe