White Collar

Supreme Court Set to Decide the Future of SEC Enforcement: The Jarkesy Case and Its Implications for Corporate Fraud

By: Lucosky Brookman
Supreme Court Set to Decide the Future of SEC Enforcement: The Jarkesy Case and Its Implications for Corporate Fraud


Corporate fraud remains a looming threat to the U.S. financial system, capturing headlines and causing substantial losses for investors. The Supreme Court is poised to make a pivotal decision in the upcoming case SEC v. Jarkesy, determining the fate of Securities and Exchange Commission (SEC) administrative enforcement proceedings—a crucial tool in combating securities fraud.


In 2011, the SEC initiated an investigation into George Jarkesy, founder of two hedge funds, and his investment adviser, Patriot28, for misrepresenting investment strategies. The resulting administrative proceeding led to findings of Securities Act, Exchange Act, and Advisers Act violations. Jarkesy contested not only the findings but also the constitutionality of the SEC's administrative proceedings, leading to a significant legal battle.

Expansion and Speed of SEC Administrative Proceedings:

The Dodd-Frank Act of 2010 expanded the SEC's power to seek penalties through administrative proceedings, contributing to a threefold increase in actions brought through this venue from 2010 to 2015. A 2020 study by Professor Xin Zheng revealed that these proceedings are resolved on average in just 10 days, 27 times faster than federal court actions, with a 99% settlement rate.

Legal Battle and Supreme Court Involvement:

Jarkesy's appeal to the 5th U.S. Circuit Court of Appeals resulted in a ruling that SEC administrative proceedings are unconstitutional. The SEC appealed to the Supreme Court, addressing constitutional concerns and defending the efficiency of administrative proceedings. The oral argument is scheduled for November 29, 2023, with over 35 amici filing briefs on the matter.

Implications for Securities Enforcement:

Legal scholars anticipate the Supreme Court's focus on the "non-delegation" doctrine, which could impact federal agencies' authority, including the SEC. Beyond the legal intricacies, the Jarkesy case holds significant implications for securities enforcement, considering the current landscape where SEC actions and private securities class actions complement each other.

Current Dynamics and Investor Protection:

SEC enforcement actions and private securities class actions, operating differently but targeting the same fraudulent behavior, currently work in tandem. Even if the Supreme Court rules against the SEC, the Commission retains the authority to bring enforcement actions in federal court. Securities class actions, described by the Supreme Court as a potent weapon in securities law enforcement, remain a robust avenue for investor protection.


As the Jarkesy case unfolds, it reflects a critical juncture in addressing corporate fraud's impact on investors. Amid growing concerns, heightened vigilance among investors and their attorneys underscores the importance of closely monitoring this Supreme Court decision, as it could reshape the landscape of securities enforcement in the United States.