The U.S. District Court for the District of Columbia confirmed that a recent Supreme Court decision limiting the Securities and Exchange Commission's (SEC) use of its administrative forum—SEC v. Jarkesy[1]—did not eliminate the SEC's ability to pursue industry bars through administrative "follow-on" proceedings. In Sztrom v. SEC, the court refused to enjoin an SEC administrative action seeking to bar an investment adviser from the securities industry, holding that the proceeding remains permissible, notwithstanding recent constitutional challenges to the SEC's in-house enforcement regime.[2]
The Sztrom plaintiffs filed a notice of appeal, and it remains to be seen how the D.C. Circuit will decide the matter. The lower court's decision, however, confirms the SEC's authority to use its administrative forum for industry bars following injunctions for now, and could be relevant to other agencies that can use their own administrative forums.
Background
The plaintiffs in Sztrom—father and son investment advisors—previously resolved an SEC enforcement action in federal court by consenting to a judgment that required them to pay a civil penalty and enjoined them from future securities law violations. The Sztroms neither admitted nor denied the SEC's securities fraud allegations.
Several months later, the SEC initiated a "follow-on" administrative proceeding seeking additional sanctions, which could include an industry bar, due to the Sztrom's agreed-to injunction. Facing the prospect of debarment, the Sztroms sued the SEC in the District of Columbia, alleging that the SEC's follow-on proceeding against them violates Article III of the Constitution, the due process clause of the Fifth Amendment, and the Seventh Amendment right to a jury trial.
The Court's Ruling
The district court rejected the challenge in full and dismissed the complaint. It held that the plaintiffs' claims were either barred by the statutory scheme requiring challenges to SEC orders to proceed through the courts of appeals or foreclosed by binding precedent predating SEC v. Jarkesy.
The court distinguished Jarkesy, explaining that while the Supreme Court limited the SEC's ability to seek civil monetary penalties in administrative proceedings, it did not disturb long-standing precedent allowing the SEC to pursue equitable and remedial sanctions—such as industry bars—through its administrative forum. The court emphasized that its role was to apply existing law, not to anticipate future changes in administrative law doctrine.[3]
Key Takeaways
Overall, Sztrom serves as a reminder that while the SEC's enforcement authority through its administrative proceedings continues to be challenged, it has not been dismantled. The decision also may influence how courts evaluate similar challenges to other agencies' administrative forums, particularly where those agencies seek remedial sanctions rather than monetary penalties. Regulated entities should expect courts to distinguish Jarkesy in cases involving industry bars, licensing restrictions, or other equitable relief.