The SEC and the D.C. Circuit

The Court’s recent opinion in the proxy access case has received a lot of attention. Here are some posts from others reacting to that decision: Steve Bainbridge, Gordon Smith, J. W. Verret, Larry Ribstein. Steve Bainbridge has a summary of other responses here. I won't add to that ample commentary. But it seems the SEC is on a real losing streak in the D. C. Circuit. Here are the losses in the last dozen years that I’m aware of. I haven’t done extensive research, so there might be more.

• Business Roundtable v. SEC (“Business Roundtable II) (D.C. Cir. 2011)

SEC’s adoption of proxy access rule violated the Administrative Procedure Act because the SEC “inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.”

• American Equity Investment Life Ins. Co. v. SEC, 613 F.3d 166 (D.C. Cir. 2010)

SEC’s adoption of a rule excluding fixed index annuities from the Securities Act exemption for annuity contracts violated the Securities Act because the SEC failed to adequately consider the effects of the rule on efficiency, competition, and capital formation

• Financial Planning Ass’n v. SEC, 482 F.3d 481 (D.C. Cir. 2007)

SEC rule exempting certain brokers from the Investment Advisers Act was inconsistent with the Act

• Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006)

SEC attempt to regulate hedge fund advisors was inconsistent with the Investment Company Act and with the SEC’s own prior interpretations of the Act

• Chamber of Commerce v. SEC (Chamber of Commerce I), 412 F.3d 133 (2005)

SEC’s adoption of corporate governance rules for mutual funds violated the Administrative Procedure Act because the SEC didn’t adequately consider either the cost of the rules or alternatives to the rules.

• Chamber of Commerce v. SEC (Chamber of Commerce II) , 443 F.3d 890 (D.C. Cir. 2006)

SEC again violated the Administrative Procedure Act by readopting the same rules approximately two weeks after the prior opinion

• Teicher v. SEC, 177 F.3d 1016 (D.C. Cir. 1999)

SEC order barring individual convicted of securities fraud from becoming associated with an investment adviser exceeded its statutory authority.

That list doesn't even include the first  Business Roundtable case, 905 F.2d 406 (D. C. Cir. 1990), that held that the SEC exceeded its statutory authority under the Exchange Act in adopting the one share,one vote rule barring exchanges and NASDAQ from listing common shares with unequal voting rights.

You may not agree with the D.C. Circuit’s position in all of these cases. My personal opinion is that the Financial Planning case is just bad statutory interpretation by the court. But it seems to me that an agency has to work really hard to lose this much. J. W. Verret argues that the most recent opinion illustrates that the SEC “is an agency with too many lawyers and not enough economists.” With this string, I’m more inclined to think that the SEC simply doesn't care enough about the rule of law.

-Steve Bradford