In SEC v. Jarkesy, the Supreme Court is poised to hold that whenever the SEC seeks to impose monetary penalties on enforcement targets for securities fraud, it must proceed in federal court and not inside its own administrative forum. Many observers predict such a holding would significantly impact SEC enforcement.

But maybe not. In a new paper, I identify a legal patch that might repair the hole Jarkesy is poised to open. The patch is based on the idea is that parties who register with the SEC thereby consent to its administrative jurisdiction. 

“Registration” is the licensing system for the securities industry; under the federal laws and rules that the SEC administers, it is unlawful to engage in certain lines of securities business without registering. Registrants take on a host of burdens in exchange for the license to conduct business and, after Jarkesy, one of those burdens may be exposure to SEC’s administrative jurisdiction. 

Drawing on Supreme Court precedent on consent to otherwise unconstitutional adjudications – including Mallory v. Norfolk Southern Railway Co., Wellness Int’l Network, Ltd. v. Sharif, and CFTC v. Schor – I show how SEC registrants either already have consented to the SEC’s administrative jurisdiction or could be deemed to have done so through some easily executed administrative actions. 

The Court has already held that parties’ “consent” to otherwise unconstitutional adjudications may be extracted through compulsory registration regimes. SEC registration may similarly constitute consent to adjudication that would have otherwise been unconstitutional. And even if the existing registration system doesn’t quite do this, I show how the SEC could quickly adopt some new interpretive guidance and/or amend a few regulatory forms to make it so.

Unlike many targets of SEC enforcement, the parties bringing the constitutional questions to the Court’s doorstep in Jarkesy were not registered with the Commission. Jarkesy’s unregistered status made his case an attractive vehicle to test the outer boundaries of constitutional adjudication, but it means his case will leave the constitutional status of registration unresolved.

If registration does constitute consent to the SEC’s administrative jurisdiction, this would substantially insulate SEC enforcement from any impact from Jarkesy. I review all 1,481 actions the SEC brought in FY 2021 and FY 2023 and find that only 5% of the agency’s original enforcement actions involved administrative proceedings against unregistered parties for fraud-related misconduct seeking monetary penalties. Limiting Jarkesy to unregistered persons would allow SEC enforcement to proceed virtually unchanged. 

The full paper is here and is forthcoming in the Notre Dame Law Review Reflection. 

Alex Platt is Associate Professor at the University of Kansas School of Law. Send comments to alex.platt@ku.edu.