SEC industry bars post-Jarkesy

United States District Judge Christopher Cooper has rejected a post-Jarkesy challenge to the US Securities and Exchange Commission’s (SEC) authority to impose industry bars through administrative proceedings. In Michael Sztrom and David Sztrom v. SEC, District Judge Cooper held that the Supreme Court’s 2024 decision in SEC v. Jarkesy limits in-house adjudication of civil penalties but does not bar the agency from pursuing non-monetary sanctions like industry suspensions and bars in its own forum.

In the case, the plaintiffs sought to enjoin an SEC “follow‑on” administrative action seeking lifetime advisory-industry bans after they previously settled an SEC enforcement action in federal court, arguing that Jarkesy and other recent Supreme Court rulings foreclose such in‑house adjudication. District Judge Cooper dismissed the suit, emphasizing that no court has held that the SEC lacks authority to bring follow‑on administrative proceedings, and that Jarkesy’s holding is confined to civil penalties.

Below, we provide background on the legal case history preceding this decision, in addition to key takeaways for clients.

Jarkesy

As discussed in a prior DLA Piper alert, the Supreme Court in Jarkesy held that when the SEC seeks civil penalties for securities fraud, the Seventh Amendment requires a jury trial in an Article III court because the claims are legal in nature and closely track common-law fraud; the “public rights” exception does not apply. See Securities & Exch. Comm’n v. Jarkesy, No. 22-859 (2024).The Court expressly declined to reach challenges to Administrative Law Judge (ALJ) removal and nondelegation, leaving those questions for another day. By contrast, follow‑on industry bars rest on statutory authority (e.g., Investment Advisers Act of 1940 §§203(e), (f)) and historically have been imposed through SEC administrative adjudications, a practice that the DC Circuit approved in Blinder, which the Court viewed as still binding. See Blinder, Robinson & Co. v. SEC, 837 F.2d 1099, 1109 (D.C. Cir. 1998).

Loper Bright

The Court also rejected the plaintiffs’ reliance on Loper Bright, which overruled Chevron deference and requires courts to exercise independent judgment on legal questions under the Administrative Procedure Act (APA), noting that Loper Bright does not itself disable the SEC’s adjudicatory authority to impose non‑monetary sanctions. See Loper Bright Enters., Inc. v. Raimondo, No. 22-451 (2024). Loper Bright will, however, sharpen judicial scrutiny of the SEC’s statutory interpretations in both rulemaking and adjudication, removing any reflexive deference to agency readings of ambiguous statutes.

Implications

The takeaway is two‑fold. First, when the SEC seeks civil penalties for fraud, it must proceed in federal court with a jury – meaning investigative and litigation strategy should anticipate Article III processes, discovery, and trial dynamics. Second, notwithstanding Jarkesy, the SEC retains a viable path to seek industry bars and related prophylactic relief via administrative follow‑on proceedings tethered to prior injunctions or convictions; efforts to block such proceedings face an uphill climb in DC courts under existing precedent. The SEC may continue to bifurcate remedies while respondents test the outer bounds of Jarkesy and Loper Bright in future challenges.

For more information, please contact the authors.