Gary Gensler, Chair of the Securities and Exchange Commission (SEC), is encountering strong opposition from Wall Street in the form of a series of lawsuits aimed at thwarting his efforts to enhance oversight of major market players and bring transparency to obscure areas of finance.
The legal challenges, initiated by financial and business groups, pose a significant threat to the regulatory agenda of one of President Joe Biden’s most assertive regulators. These legal actions come as the SEC strives to implement several measures before the November elections.
Recently, the Chamber of Commerce secured a court ruling to invalidate a stock-buyback reporting rule, marking Gensler’s first major setback. The Chamber is also challenging another regulation related to shareholder advisers.
Investors are seeking to block substantial private-fund reforms, and hedge fund groups are contesting new disclosure rules. Additionally, business associations are poised to challenge more than half a dozen other proposed rules, including one of Gensler’s most ambitious initiatives—a climate risk reporting mandate.
The legal conflicts pose a significant challenge for the SEC at a precarious time for regulators, with industry groups presenting arguments that could potentially diminish long-standing powers, depending on court rulings.
Conservative judges, including those at the Supreme Court, have shown an increasing interest in scrutinizing agency authority, reflecting a broader assault on the administrative state.
Eugene Scalia, former Labor Secretary and a prominent administrative law litigator, highlighted that the Supreme Court is engaged in an extensive examination of the limits and powers of the administrative state, comparable to the scrutiny seen since the New Deal.
Recent indications from the high court suggest a willingness to grant judges more authority to override agencies, exemplified by the Chevron deference case.
Financial firms argue that Gensler’s proposals lack justification and exceed the SEC’s powers, leading to successful lobbying efforts to scale back some plans. Gensler’s supporters contend that these reforms are vital for investor protection, and the SEC is committed to defending its stance.
The SEC chair frames these legal challenges as part of the natural tension between regulated entities and their overseers, emphasizing the agency’s adherence to legal bounds.
The legal battles present a formidable obstacle for the SEC, with at least eight groups opposing new rules. The broader and bolder legal attacks from industry groups come at a time when conservative judges are less deferential, more conservative, and more hostile to the administrative state.
Gensler’s ambitious agenda, covering areas like climate disclosure and stock-trading reforms, faces resistance as the industry exploits potential vulnerabilities in the regulatory landscape.
While the SEC is committed to fighting these lawsuits, the threat of litigation is influencing the agency’s approach to finalizing Gensler’s agenda. Despite the challenges, Gensler remains focused on regulating within the bounds of the law and adapting to court interpretations.
The legal battles underscore the influence of industry groups in challenging regulatory initiatives, raising concerns about the potential impact on investor protection and financial market oversight.