July 31, 2023
“Respect My Authoritah!” Cyber Release Defends SEC Rulemaking Power
Chair Gensler’s remarks before the FSOC weren’t the only place where the SEC’s rulemaking power was defended last week. In fact, I couldn’t resist channeling my inner Eric Cartman this morning after reading the SEC’s spirited defense of its broad authority to adopt disclosure rules that begins on p. 97 of the Cybersecurity Disclosure Rules Adopting Release. Here’s an excerpt:
Disclosure to investors is a central pillar of the Federal securities laws. The Securities Act of 1933 “was designed to provide investors with full disclosure of material information concerning public offerings of securities.” In addition, the Securities Exchange Act of 1934 imposes “regular reporting requirements on companies whose stock is listed on national securities exchanges.” Together, the provisions of the Federal securities laws mandating release of information to the market—and authorizing the Commission to require additional disclosures—have prompted the Supreme Court to “repeatedly” describe “the fundamental purpose” of the securities laws as substituting “a philosophy of full disclosure for the philosophy of caveat emptor.”
This bedrock principle of “[d]isclosure, and not paternalistic withholding of accurate information, is the policy chosen and expressed by Congress.”362 Moreover, “[u]nderlying the adoption of extensive disclosure requirements was a legislative philosophy: ‘There cannot be honest markets without honest publicity. Manipulation and dishonest practices of the market place thrive upon mystery and secrecy.’”
The discussion goes on to identify specific statutory provisions granting the SEC broad disclosure authority, and also provides numerous examples of where the agency has exercised that authority.
The SEC’s claim to broad rulemaking authority has been challenged by conservatives in recent years, and I suspect that the arguments the agency makes in the 10 pages that it devotes to this topic in the release are likely to resurface in much expanded form in the lawsuits that are likely to arise challenging many of the rules on its current agenda.
– John Jenkins