Securities and Exchange Commission Historical Society

Chasing the Devil Around the Stump: Securities Regulation, the SEC and the Courts

The Minds of the Justices

Justice Frankfurter Exerts His Influence

- January 12, 1939 Felix Frankfurter at hearing

No twentieth-century justice exerted more influence, both positively and negatively, during his tenure on the Supreme Court than Felix Frankfurter. A confidante of President Roosevelt, who plucked Frankfurter away from his Harvard Law School professorship to appoint him to the Court upon the retirement of Justice Louis Brandeis in 1939, Frankfurter led the argument in favor of judicial deference. Despite his New Deal sympathies, Frankfurter was never an automatic vote for legislation or administrative rulemaking. For Justice Frankfurter, the law or rule had to have a reasonable connection to the underlying public purpose of the legislation passed by Congress in order to be constitutional. This check on the power of administrative agencies was important precisely because of the power that those agencies had accrued from Congress. Only where that connection was clearly present would Frankfurter agree to defer to the legislative or administrative body.

Increasingly complex legislation, extending from the relatively direct origins of the Securities Act of1933 and the Securities Exchange Act of 1934, to the Investment Company Act of 1940, the Investment Advisors Act of 1940, and the numerous administrative rules made by the SEC to interpret and enforce those statutes, were all considered by Frankfurter and his colleagues before he left the Supreme Court in 1965. It was the complexity of the law and rules, caused by changes and innovations in the securities industry responding to new investor demands and products, which made Frankfurter’s judicial deference increasingly difficult to practice.

Frankfurter reasoned that, in order to defer to the legislature or to the SEC, one first had to understand exactly what and why Congress had enacted a particular law. While still at Harvard Law School, Frankfurter commended Chief Justice Harlan Fiske Stone on his dissent in National Bank of Boston v. Maine that “a case, particularly in public law, is not merely an adjudication—it is also a generating force for the future.” Stone’s dissenting opinion sets up a counterpoint for the future. “The history of American constitutional law is partly the history of whipping the devil around the stump.”47

Frankfurter believed that the development of constitutional law was the slow, careful process of the accretion of new ideas. When the majority was wrong, the duty of a justice was to point out the mistake, and bide his time. Just as importantly, Frankfurter believed that the duty of the Court was to defer when it could determine legislative intent based upon hearings and legislation passed. Frankfurter tempered his own bias in favor of administrative expertise through his recognition that the law must still reflect popularly-elected majorities. For Frankfurter, administrative agencies such as the SEC had a duty to clearly follow the intent of Congress in administering the law.

But judicial deferral, the foundational principle of one of the most influential justices on the court, would soon be challenged by his growing concern about what Congress intended and whether the SEC had followed its intent. In a number of SEC cases that came to the Court after the New Deal, Frankfurter dissented because, after careful analysis of the actions of the SEC, he believed that they had not been faithful to the expressed intent of Congress in passing legislation. That defect required him to strike down the actions of the SEC staff where he felt it had not been faithful to that intent.

Over time, Frankfurter, one of the founders and most vocal supporters of the creation of the SEC, often found himself in lonely dissent as the majority found no such difficulty and continued to side with the SEC’s more expansive interpretation of the law. Frankfurter left the Supreme Court in 1965. By 1972, his nuanced philosophy soon gave way to a new set of principles that arrived on the Court with the appointment of two new justices who brought with them their own expertise and strong judicial philosophy.48


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Footnotes:

(47) Letter from Felix Frankfurter to Justice Harlan Stone on First National Bank of Boston vs. Maine, January 7, 1932. First National Bank of Boston vs. Maine involved Maine’s attempt to tax at the death of the Massachusetts resident who owned stock of a Maine corporation, due solely to a decedent’s Maine residency. The Court struck down as impermissible double taxation Maine’s attempt to tax the decedent’s estate, despite the fact that Massachusetts and Maine both provided credits for the taxes paid by the owner of stock.

(48) See Thompson and Sullivan, “The Supreme Court and Private Law”, Appendix A, where the list of cases expanding SEC authority where Frankfurter dissented includes SEC v. W J Howey Co., Wilko v. Swan, and SEC v. Variable Annuity Life Insurance. No opinion authored by Frankfurter expanding the power of the SEC is listed.


Related Museum Resources

Papers

February 21, 1917
transcript pdf (Louis D. Brandeis Papers, Brandeis School of Law, University of Louisville)
July 16, 1923
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
June 6, 1928
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 29, 1930
transcript pdf (Louis D. Brandeis Papers, Brandeis School of Law, University of Louisville)
December 4, 1931
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 7, 1932
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 10, 1932
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
March 28, 1932
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
April 2, 1932
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 24, 1933
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
February 2, 1933
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
September 28, 1933
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 9, 1935
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
February 19, 1935
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
May 9, 1935
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 9, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
February 14, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
April 7, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
April 7, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
May 28, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
June 3, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
June 5, 1936
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
March 30, 1937
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
April 27, 1938
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
May 16, 1940
transcript pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 23, 1943
image pdf (Harlan Fiske Stone Papers, courtesy Library of Congress)
January 29, 1943
transcript pdf (Stanley Forman Reed Collection, University of Kentucky)
February 1, 1943
transcript pdf (Robert H. Jackson Papers, courtesy Library of Congress)
February 1, 1943
image pdf (William O. Douglas Papers, courtesy Library of Congress)
March 7, 1944
image pdf (Wiley Rutledge Papers, courtesy Library of Congress)
May 2, 1944
image pdf (Wiley Rutledge Papers, courtesy Library of Congress)
November 21, 1944
transcript pdf (Stanley Forman Reed Collection, University of Kentucky)
November 23, 1946
transcript pdf (Wiley Rutledge Papers, courtesy Library of Congress)
November 23, 1946
transcript pdf (Frederick Moore Vinson Collection, University of Kentucky)
December 23, 1946
transcript pdf (Robert H. Jackson Papers, courtesy Library of Congress)
March 14, 1947
transcript pdf (Wiley B. Rutledge Papers, courtesy Library of Congress)
March 24, 1947
transcript pdf (Wiley B. Rutledge Papers, courtesy Library of Congress)
June 18, 1947
transcript pdf (Frederick Moore Vinson Collection, University of Kentucky)
December 18, 1948
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
April 25, 1949
transcript pdf (Frederick Moore Vinson Collection, University of Kentucky)
December 18, 1953
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
February 25, 1955
image pdf (William O. Douglas Papers, courtesy Library of Congress)
December 1955
image pdf (Hugo Black Papers, courtesy Library of Congress)
June 3, 1957
image pdf (Earl Warren Papers, courtesy Library of Congress)

Photos

January 12, 1939

(left to right) Senator William King (Utah), Senator M.M. Neely (West Virginia) and Senator George Norris (Nebraska); Felix Frankfurter back to camera

(Courtesy Library of Congress )

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