David Fredrickson’s commentary was included in a Waters Technology article on how the U.S. Supreme Court’s overturning of the Chevron doctrine, along with the rulings in Securities and Exchange Commission v. Jarkesy and Corner Post, Inc. v. Board of Governors of the Federal Reserve System, may affect how the Securities and Exchange Commission (SEC) will bring enforcement cases.
David provides his insight on why he believes, that in his experience, Chevron’s loss will not hurt the regulator’s ability to bring enforcement actions. “I don’t think [Chevron’s overturning] is going to have much, if any, effect on the SEC,” he says. “Chevron has not figured all that prominently in the cases that are brought against the SEC. The Supreme Court majority is definitely saying to the courts that they are in charge of deciding what the law is here, and ‘We’ve got your back.”
On the Jarkesy decision, David notes that in like cases applicable to Chevron, the SEC has also dialed back its number of cases in front of Administrative Law Judges over the last six or seven years, in anticipation of its powers being stripped back. He says that the SEC’s high settlement rate in its ALJ cases is more a question of psychology.
“Within the SEC enforcement program, parties can bring an action in district court or bring in an action in an administrative proceeding, and since there’s always been this perception that the administrative proceeding is less severe, part of negotiating settlements for many companies is, ‘We’ll agree to X—whatever the violation—as long as we can settle in an administrative forum,” he says. “There’s a built-in bias that there is a high number of settlements in the administrative forum because that’s more efficient for the SEC, and it seems less severe than settling to a district court action.”
Regarding whether parties will now appeal ALJ decisions in light of the Jarkesy ruling, David points out that the SEC’s aggressive and wide-ranging agenda has already triggered a number of legal battles over the regulator’s perceived overreaches.
Discussing the Corner Post ruling, David says the court’s decision was a surprise. “[Corner Post] is to me, right out of the blue,” he says. “That is a real game-changer. No rule is ever settled, and new entrants into the marketplace can say, ‘I’m affected. I can bring an action against it.’ So that is quite destabilizing.” David explains that in practice, this ruling means that if a law passed in the 1960s is affecting a company founded in 2019, the owner of that company can bring a challenge against the regulator. “I don’t know that anyone saw that coming,” he says.
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