SEC, FTC risk new restrictions as Supreme Court looks at regulators’ scope | Media Pyro


The US Supreme Court is turning its anti-regulatory campaign against federal agencies that scrutinize Wall Street banks and seek to break them up Meta Platforms Inc.handling cases that could bring down two powerful market regulators.

On Monday, the judges will consider the question of whether to file complaints from the parties Securities and Exchange Commission or Federal Trade Commission can apply directly to the federal court with a constitutional challenge of their cases. Most lower courts have said those challenges must await an internal process that could take years and possibly give the agency an unfair advantage.

A ruling against the government could undermine the work of two of the most powerful federal regulators. In the last fiscal year, the SEC filed more than 700 enforcement actions and won $6.4 billion in judgments and injunctions, including from investment banks. The FTC, which is also investigating Inc.returned $2.4 billion to consumers last year.

The decision would continue a string of Supreme Court decisions that undermine the federal administrative state. In June, the court and its 6-3 conservative majority chopped in Environmental Protection Agencyclimate change mandate, which limits the ability of government agencies to address issues that have serious political or economic consequences.

People stand outside the U.S. Supreme Court building in Washington, D.C., where justices will hear arguments on Monday in cases that could limit the SEC and FTC’s access.

Photographer: Andrew Harrer/Bloomberg

“This court could potentially curtail the agencies’ rulemaking powers, their enforcement powers, and their adjudicative powers,” said Jill Fishis a securities law scholar and professor at the University of Pennsylvania School of Law.

Recent cases have focused on advocacy issues that can have a large practical impact. A key question is whether federal district courts have jurisdiction to hear opposition to the agency’s system of using full-time administrative law judges, known as ALJs, to hear many of their cases.

Work protection

The suitors are accountant Michelle Cochran in the SEC case and body camera maker Axon Enterprises Inc. in the FTC case—argued that the system violates the Constitution because the job protections granted to administrative law judges too insulate them from presidential oversight. Cochran and Axon cite a 2010 Supreme Court decision declared invalid similar protection for members of the Accounting Supervisory Board of a public company.

The Biden The administration says Cochran and Axon can make those arguments, but only after they go through each panel’s review and appeal its final decision in a federal appeals court. In Cochran’s case, that marks the end of an SEC battle that began in 2016, when the commission first accused her of professional misconduct.

“It’s really crazy,” said Margaret Little, senior litigation counsel for the New Alliance for Civil Liberties and one of Cochran’s attorneys. “It doesn’t make any sense to force people to drag out years of proceedings that are destined to be delayed because they are unconstitutional.”

But the US Solicitor General Elizabeth Prelogar, the Supreme Court’s chief administrative law clerk, says that’s exactly what Congress required when it passed the agency’s governing statutes. In court documents, she argued that Cochran and Axon were trying to “lock down” the system established by lawmakers and would “undermine the policy choices of Congress.”

Axon is fighting the FTC’s efforts to block the company’s acquisition of a competitor. In addition to challenging the tenure protections for the Commission’s single administrative law judge, the company seeks to challenge the process by which the FTC and the Justice Department decide which agency will review the deal. Unlike the FTC, the Justice Department hears cases only in federal court.

A Supreme Court defeat by the commissions could reduce their use of administrative law judges, something that has already begun to happen at the SEC after the 2018 Supreme Court ruler revealed constitutional problems regarding the method of appointing judges. Critics say fewer domestic procedures would be good, given the home-field advantage the agencies enjoy.

“The ultimate goal is to move enforcement agencies out of their domestic courts, which rule for them 100 percent of the time, and back into the federal courts, where people have constitutional protections,” Little said.

The Biden administration disputes the characterization of domestic courts as one-sided, saying research shows agencies lose a significant percentage of those cases.

but Elise DorseyKirkland & Ellis lawyer, said the FTC rarely loses in its own court compared to the Justice Department, which has complication persuading the courts in a number of recent cases.

“If you look at the difference between what happens when agencies go to federal court and when the FTC takes it in-house, you see a bit of a disconnect,” said Dorsey, who worked at both the FTC and the Justice Department during the Trump administration. .

More challenges

More broadly, a Supreme Court defeat for the agencies could make them more vulnerable to new litigation, legal experts say.

The Axon case “may really open the door for other types of FTC challenges,” he said Andrii Havil, a professor at Howard University Law School. The FTC recently began drafting online privacy rules that have already gone into effect under fire from business groups as exceeding the authority of the department.

“Given the guidance of the Supreme Administrative Law Court, now is not the best time to use your authority to the maximum,” Gavill said.

Supreme Court last year reduced the FTC’s ability to seek monetary awards, a tool it has used for decades to force companies to reimburse consumers for fraud or other illegal behavior. Congress has fought for a fix amid criticism from Republicans and business groups of the agency’s leadership under Biden, Lina Khan.

The Securities and Exchange Commission (SEC) is already operating in the shadow of a Supreme Court decision by the EPA that could fuel expected legal challenges to the agency’s proposal to require public companies to disclose information about the climate risks they face. And the federal appeals court in May said the SEC’s internal proceedings violated the hedge fund manager’s constitutional right to a jury trial.

The Supreme Court’s show of concern about how administrative agencies operate “has allowed companies and individuals to challenge agency actions on multiple grounds,” said Harold Krent, a professor at the Chicago-Kent College of Law at the Illinois Institute of Technology. The pending cases could “change the legal landscape incredibly,” he said.

“The conservative majority believes that smaller government is better government,” he said Jack Yoskowitz, a securities attorney at Seward & Kissel LLP in New York. “They will no longer rely on the ‘experts’ in these agencies.”

To contact reporters for this story:
Greg Storr in Washington at;
Lidia Beyud in Washington at;
Leah Nylen in Washington at

To contact the editors responsible for this story:
Elizabeth Wasserman at;
Sarah Forden at

© 2022 Bloomberg LP. All rights reserved. Used with permission.


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