SEC Completes Hat Trick of Legal Setbacks

On Friday, the Supreme Court’s ruling in two closely-watched cases overturned the 40-year old doctrine of “Chevron deference,” which required judges to defer to federal agencies regarding their interpretation of ambiguous statutes where the agency’s interpretation of the statute was reasonable. While the SEC itself was not named as a party in the Chevron cases, it will nonetheless be meaningfully impacted by this ruling. This caps off a dismal month of June for the SEC that saw a string of legal setbacks for the agency, including the Fifth Circuit ruling on June 5 that vacated the Private Fund Adviser Rules and the Supreme Court ruling on June 27 that found unconstitutional the SEC’s use of in-house administrative proceeds in cases seeking to impose civil monetary penalties. 

It remains to be seen what the real-world impact of this ruling will be on the SEC and other federal regulatory agencies. Undoubtedly, it exposes them to greater litigation risk regarding both existing and future rulemaking, but it is not necessarily the case that the courts will rule against the agency’s interpretation of the relevant statutes. (You certainly couldn’t be faulted for considering the agency to be the underdog given the current posture of the federal judiciary toward the regulatory state, but it is not a fait accompli.) The ruling also does not preclude Congress from refining existing statutes to be less ambiguous or from passing laws that more expressly delegate interpretive authority to an agency. (You would probably be right not to hold your breath waiting for that to happen given the current state of gridlock in Congress, but hey, stranger things have happened.) 

The only certainty at this point is that the SEC probably breathed a sigh of relief this morning when they turned their calendars to July because their month of June was about as bad as it gets.