The Securities and Exchange Commission has lost any credible claim to being a neutral regulator. The agency’s pursuit of climate regulations and its regulation by enforcement of the crypto industry undermine its mission to maintain efficient markets and facilitate capital formation. It is long past time for Congress to rein in the rogue agency.
The SEC is pursuing new disclosure rules and other requirements, unprecedented in cost and scope, related to Environmental, Social and Governance considerations. The purpose of these rules is not to advance any part of the mission of the SEC but to better allow activists to pressure companies into changing behavior to satisfy their personal ideological preferences.
It is perfectly appropriate for individuals and groups to wage social campaigns and use all the persuasive tools permitted under the First Amendment to seek to persuade others to alter their behavior. But when regulators with criminal enforcement powers take it upon themselves to tilt the scales of political and social debates, even at the expense of their purported missions, it represents an outright corruption of power.
Imagine if the SEC, under a Republican administration, sought to mandate corporate disclosures of woke activism or the use of critical race theory in employee training. Those may well be things that many investors care about, but foisting costly requirements on businesses to provide that information according to specific criteria set at the whim of unelected bureaucrats would be an abuse of power.
At some level, the SEC must understand that it has gotten out over its skies and is exceeding congressional authorization. How else should we interpret that under Chairman Gary Gensler, the SEC “refuses to provide an adequate amount of time for public feedback for complex rule-makings,” according to a letter from a coalition of 15 advocacy and watchdog organizations?
The letter explains, “From 2021 to March 2022, 74 percent of the SEC’s rules provided only 30-day comment periods. Under Mary Jo White, 96 percent of SEC rules had at least 60-day comment periods. Under Jay Clayton, 85 percent of rules provided at least 60-day comment periods.”
Gensler’s SEC, in other words, is ramming through radical rule-makings hoping no one notices until it’s too late. Unfortunately, this is the tip of the iceberg when it comes to concerning behavior from the SEC.
For years the crypto industry has asked for and been denied clear guidance on how to comply with dated securities law. In its prosecution of Ripple — whose native token, XRP, is alleged by the SEC to be unregistered security — the agency has repeatedly defied judicial orders to produce internal documents relating to its process for determining that XRP was acting as security and explaining apparent contradictions with public statements from its representatives and why it reached different conclusions in other cases.
The lack of transparency is part of an apparently deliberate strategy at the SEC to engage in regulation by enforcement. Refusing to produce clear rules before investigating and charging companies with breaking them violates basic due process and leads to innovation stifling uncertainty.
Such tactics led Coinbase and BlockFi to shelve financial products offering generous returns for holding assets on their platforms. Instead of the mere pennies offered by traditional banking, working Americans would have had access to an 8 percent annual yield or more on savings. Unfortunately, SEC obstruction stood in the way of innovation.
Another company, Celsius, similarly sought to avoid regulatory barriers by offering high returns only to “accredited investors,” which means only those already wealthy can benefit.
So much for regulators as protectors of the little guy.
To further prevent scrutiny of its enforcement tactics, the SEC imposes perpetual gag orders on defendants that settle with the agency, thereby ensuring that those with the most relevant knowledge of SEC behavior cannot spread that information. Rules that prevent defendants from telling their side of the story to allow the SEC to engage in abusive and coercive prosecutorial tactics without drawing public scrutiny and triggering lawmaker oversight.
The pattern is clear. SEC regulators do not believe that their activities should be bound by the agency’s legal mission, nor that due process and the rule of law limit the tactics available to pursue their activist agenda. It’s obvious that only direct and decisive action by Congress will break the pattern of abuse.
