Stuart Alderoty, Chief Legal Officer at Ripple, took to X to address recent criticisms of the U.S. SEC by a federal court. The court’s ruling in the National Association of Manufacturers (NAM) vs. SEC case deemed one of the SEC’s actions unlawful, intensifying scrutiny over the agency’s legal decisions.
Alderoty responded to the court’s decision, which rebuked the SEC for improperly rescinding a rule concerning proxy advisory firms established in 2020. This rule, designed to enhance transparency in shareholder voting recommendations, never came into effect as initially intended.
The court emphasized that the SEC failed to adhere to the Administrative Procedure Act (APA), which mandates specific procedures for federal agencies when creating or revoking regulations.
Background on the ruling revolves around a 2020 SEC rule intended to regulate proxy advisory firms, entities providing services like voting recommendations on corporate governance matters. This rule aimed to introduce notice-and-awareness requirements to ensure fairness and transparency. However, under new leadership with Gary Gensler becoming SEC Chairman in April 2021, the SEC decided to suspend and ultimately rescind the rule.
In June 2022, a Texas district court annulled the suspension, prompting NAM to challenge the SEC’s partial rescission of the rule as arbitrary. Despite a summary judgment in favor of the SEC in 2022, NAM appealed this decision.
Last August, the Fifth Circuit Court of Appeals rendered its decision, criticizing the SEC for bypassing APA requirements in its hasty rescission of the rule.
Alderoty highlighted that the SEC, under Gensler’s direction, acted illegally and underscored broader concerns about the agency’s regulatory practices. He pointed out ongoing criticisms of Gensler’s leadership, reflecting administrative overreach.
This ruling compounds recent legal challenges against the SEC, which have scrutinized its decision-making processes and adherence to legal standards. Earlier this year, a court rebuked the SEC for misleading statements in its case against DEBT Box, and two months ago, an appeals court denied the SEC’s motion to reconsider a previous decision in its legal battle against Aaron Govil.
For Ripple and other entities in legal disputes with the SEC, these rulings underscore potential weaknesses in the agency’s regulatory framework that could impact current and future cases.
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