Tag: SEC

Stopping the Runaway SEC

 

This past week, the Fifth Circuit Court of Appeals issued a long-overdue blockbuster opinion in Jarkesy v. SEC (2022), which attacks the very foundations of the modern administrative state of which I have long been critical. At issue in that case was a challenge to what is now standard procedure under the 2010 Dodd-Frank Act which allows, as Mario Loyola noted, the United States Securities and Exchange Commission (SEC) to act as “prosecutor, judge, and jury” in major cases that come before it. Why? Because the SEC commissioners: (1) formulate the charges; (2) then appoint an administrative judge on an ad hoc basis to hear the charges, inside the SEC and under SEC procedures; and (3) finally, execute and enforce any punishment. The SEC does this all without any judicial oversight until the appeal stage. This process is designed to exhaust defendants faced with heavy charges, which happened as recently as 2018 in Lucia v. SEC. There, the accused won the right to a new trial before another stacked panel inside the SEC after years of litigation, which, exhausted from the ordeal, he settled on unfavorable terms two years later.

George Jarkesy also faces serious charges and onerous sanctions. The SEC alleged that Jarkesy misrepresented who served as prime broker and auditor, misstated two hedge funds’ “investment parameters and safeguards,” and overvalued firm assets in order to inflate his own fees. The serious sanctions included a civil penalty of $300,000, disgorgement of $685,000 in ill-gotten gains, and a set of prohibitions against engaging in certain industry activities, including associating with brokers, dealers, and advisers, offering penny stocks, and serving as a director or investment adviser to any securities-related firms.

To my mind, the correct response is to hold that the use of these SEC procedures was a flagrant violation of the Due Process Clause of the Fifth Amendment, which reads: “No person shall . . . be deprived of life, liberty, or property, without due process of law.” That clause guards against all abuses by the United States, including all legislative, executive, judicial, and administrative procedures by or in the SEC. The level of protection “due” in litigated cases must ensure that the tribunal be free not only of bias but also of the appearance of bias. Those minimal conditions cannot be satisfied when the SEC flouts the principle of the separation of powers by giving the agency full run of the show.

SEC’s Climate Disclosure Scheme Is a Mess

 

The Securities and Exchange Commission (SEC), which recently flexed its muscles to expand regulations over private equity firms, is at it again. Only this time, the stakes are far higher: its tedious 506-page proposal for mandated disclosures relating to climate change will expose every major corporation in the United States to unending administrative meddling.

As with the private equity proposal, the new SEC initiative provoked a detailed and powerful response from SEC Commissioner Hester Peirce, who disputed virtually every assertion made by the three-member Democratic majority, headed by SEC Chairman Gary Gensler. Gensler claims that the new rules will allow for greater consistency and comparability of the anti-global-warming efforts of different companies. Peirce responds instead that the SEC diktat will force each company to make so many ad hoc factual assumptions that the new findings will be indigestible by the very investors whom it is said to inform and protect. The Democratic majority claims that expanded climate disclosures are always material to prudent investors, citing in support of its position the general remarks of BlackRock CEO Larry Fink, who insists that the threat of global warming requires a “Fundamental Reshaping of Finance.” Peirce responds that the definition of materiality extends only to cover information that private parties use to make investment decisions, but does not cover matters of general public affairs as defined by the ESG—environmental, social, and governance—movement, which often subordinates firm welfare to advance highly intertwined matters of environmental protection and social responsibility. She further insists that these marginal explorations fall outside the statutory authority of the SEC, which contrasts with the Democratic majority’s view that this vast initiative lies at the core of the SEC’s statutory mission.

On balance, Commissioner Peirce has the best of these arguments. But, at this time, I shall go off into a different direction to see whether, wholly apart from these technical legal issues, the entire exercise is worth the candle. On this score, what is so disconcerting about the SEC’s new initiative is how little attention it pays to the central questions that should be preconditions for adopting the novel program in the first place. Here, I can deal with only three of these issues. The first is whether the SEC has demonstrated that global warming is such an existential threat that this bold initiative is warranted. The second is whether the proposed initiative can curb the supposed adverse effects of global warming. And the third is, assuming that the initiative could in the abstract curb such purported effects, whether the proposed institutional design achieves that outcome.

James R. Copland joins Rafael Mangual to discuss how activist investors are turning corporate America’s annual shareholder-meeting process into a political circus.

Most of corporate America is wrapping up the 2019 “proxy season” this month—the period when most publicly traded companies hold their annual meetings. It’s at these gatherings that shareholders can (either directly or by proxy) propose and vote on changes to the company. Since 2011, the Manhattan Institute has tracked these proposals on its Proxy Monitor website. This year’s proxy season has followed a long-term trend: a small group of investors dominates the proceedings, introducing dozens of progressive-inspired proposals on issues ranging from climate change to diversity.

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This week’s college football post comes a day early as there are thrilling matchups to be seen on Friday and Saturday. In the ACC we have No. 11 Florida Gators at the Florida State Seminoles, the N.C. State Wolfpack at the North Carolina Tarheels, and the South Carolina Gamecocks at the No. 2 Clemson Tigers. […]

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With Thanksgiving looming, the chill of an early winter has spread across the land. But the college gridiron remains red-hot. The ACC gives us a potentially thrilling matchup between the No. 3 Notre Dame Fighting Irish and the No. 12 Syracuse Orange. In addition, the N.C. State Wolfpack will try to pick up their seventh […]

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Election Day has come and gone, but college football rolls on! Out east in the ACC, the No. 2 Clemson Tigers are headed for a Beantown showdown with the No. 17 Boston College Eagles. Also, the No. 3 Notre Dame Fighting Irish are hosting the Florida State Seminoles. The Big Ten features the No. 18 […]

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November is here with gridiron glory galore. In the ACC, the No. 21 N.C. State Wolfpack will be defending their home field against the visiting Florida State Seminoles. The Big Ten’s premiere game will feature the No. 5 Michigan Wolverines hosting the No. 14 Penn State Nittany Lions. The SEC features a clash of the […]

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With Halloween just days away, this weekend offers a monster mash-up of games for college football fans. In the ACC, the No. 22 N.C. State Wolfpack head deep into the heart of Yankeeland to play the Syracuse Orange while the Florida State Seminoles will hope for an upset against the visiting No. 2 Clemson Tigers. […]

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The hunt for mid-October supremacy is on with many great games to watch this weekend. The best one may be in the ACC, where the No. 16 North Carolina State Wolfpack are on the road for a showdown with the No. 3 Clemson Tigers. Both teams are undefeated heading into the game. The Big Ten […]

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This has been a very eventful week to say the very least, with drama galore. The college football world promises much the same on Saturday with some potentially thrilling matchups, the greatest of which could well be the Red River Shootout in the Big 12 between the No. 19 Texas Longhorns and the No. 7 […]

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On this last weekend of September, a number of interesting games are on tap that will determine how the rest of the season unfolds. In the Atlantic Coast Conference, there will be a clash of the undefeateds as the No. 3 Clemson Tigers host the visiting Syracuse Orange. The Big Ten gives us what could […]

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The autumn equinox is now upon us, but while some parts of the country may be experiencing the chill of an early fall, the action on the college football gridiron is heating up! In the east, the doughty Demon Deacons of Wake Forest will have a homestand against the visiting No. 8 Notre Dame Fighting […]

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At the midpoint of September, with summer fading and fall looming, some intriguing games are on schedule this Saturday. Among them will be a Big 12 vs. Pac-12 matchup as the Texas Longhorns host the No. 22 USC Trojans – a game that could be either a barnburner or a blowout, depending on which version […]

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It’s been a rainy September here in the Texas Hill Country, but this weekend’s college football matchups should bring clear and sunny skies! There is a Big 12 vs. Big Ten game on tap as the Iowa State Cyclones travel to Iowa City to take on the Iowa Hawkeyes. Also, the Big 12 clashes with […]

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College Football Is Back, Baby!

 

At long last, after nearly nine interminable months, my favorite time of year is at hand: college football season. Unlike the increasingly politically correct NFL, the American flag will be properly honored and politics will be sidelined for love of the game. And beautiful young women on the sidelines will vigorously cheer their schools on to victory. Truly, there’s no place I’d rather be this fall than at Jones Stadium in Lubbock, Texas, rooting for my Texas Tech Red Raiders as they take the field. Alas, I’ll have to make do with television.

So, what will transpire during the 2018 campaign? Will the Alabama Crimson Tide repeat as national champions, or will they be upended by such SEC rivals as the Georgia Bulldogs or the Auburn Tigers? Could the Clemson Tigers continue to dominate the Atlantic Coast Conference? Might the Oklahoma Sooners win a fourth consecutive Big 12 title, or will a dark horse like the TCU Horned Frogs knock them off? Could the Oregon Ducks (hey @thegreatadventure!) return to Pac-12 glory? And in light of Urban Meyer’s suspension, will the Ohio State Buckeyes continue their mastery of the Big Ten?

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College football is almost here. Y’all can have the NFL, the Canadian Football league, World Cup soccer, and rugby. College football the other hand, is something special. When the SEC Network started, there was some questions as to whether DirectTV would carry it. I emailed early and often, lobbying them to do so. I received […]

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Miscarriage of Justice at the SEC

 

The United States Constitution lays out the principle of the separation of powers in three simple steps. Article I of the Constitution gives Congress the power to make the laws of the United States. Article II entrusts the President to take care that the laws be faithfully executed, usually through the actions of other executive branch individuals. Article III then charges the federal courts with applying the laws passed by Congress and enforced by the executive branch when deciding cases and ordering remedies. This constitutional structure avoids concentrating excessive power in any one branch—a protection that is lost when all three functions are put in the hands of a single agency.

Thanks to the rise of the administrative state, agencies like the Securities and Exchange Commission are taking over responsibility for all three functions. The agency promulgates extensive regulations that have the force of law, which it then enforces against individual defendants, often in an SEC tribunal, not in an Article III court. This cozy arrangement is now being tested in Lucia v. Securities and Exchange Commission, argued last week before the Supreme Court.

Before his run in with the SEC, Raymond J. Lucia was an investment professional who regularly gave complimentary public presentations on his “Buckets of Money” (BOM) strategy for individual retirees. BOM starts with a diversified stock portfolio in which low-risk investments are sold first, allowing high-risk investments more time to appreciate. Lucia’s standard presentation relied on a large deck of slides, two of which gave “hypothetical” examples of how this strategy might work. The SEC ultimately determined that these slides were seriously misleading, even though they had repeatedly passed muster before a private industry group known as FINRA (The Financial Industry Regulatory Authority) and had previously been presented to the SEC, which had raised no objection to them. None of the 50,000 people who attended these presentations over the years filed any complaint against Lucia, let alone lost any money. At these presentations, Lucia asked attendees to contact him directly if they wanted additional personal advice.