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 Powell's Counter-Revolution

“I kid Lewis Powell to the effect that he is still representing his corporate clients and their appendages. I share your sadness as to the Court’s action in narrowing what seems to me to be the intent of Congress.”

July 19, 1983 Reply letter from Associate Justice Harry Blackmun to Victor Brudney

Many observers believed that the Supreme Court would turn more conservative with the arrival of two appointees of President Nixon in January 1972. William H. Rehnquist and Lewis Powell, both conservatives, did not dramatically reshape the court overnight. But, in the field of securities law, Justice Powell, who had been a securities lawyer in private practice, almost immediately began to reshape and restrict the previously expansive reach of the SEC.49

Powell’s archives demonstrate his strong belief that government, particularly administrative agencies such as the SEC, had far overreached their appropriate power. The limits of administrative authority, always a bit murky in the field of securities law, needed to be clarified. Powell adopted his own brand of judicial deference, but one that demanded powerful new adherence by administrative agencies to Congressional intent.

Powell relied on his personal expertise as a securities lawyer while on the court. Other justices, less interested in the area, especially after an extended period of decades where it seemed the SEC’s administrative expertise nearly always ruled the day, began to defer to Powell’s judgment. In a series of cases, Powell wrote majority decisions that challenged and restricted the SEC’s previous authority.50

In 1975, in Blue Chip Stamps v. Manor Drug Stores, the Supreme Court adopted a narrow definition of purchaser and seller for purposes of defining who can bring suit under Rule 10b-5.51 In Ernst & Ernst v. Hochfelder, the Court rejected the SEC’s position and ruled that the law required a “scienter” standard for liability under Rule 10b-5.52 A year later, the Court reversed an appellate decision in Santa Fe Industries Inc. v. Green and limited the use of securities law in an area traditionally regulated by state corporate law.53

Most telling perhaps were the insider trading cases that arose during that period.54 In Chiarella v. United States 55, Dirks v. SEC 56, and Carpenter v U.S.57, Justice Powell led the majorities in limiting an expansive view of insider trading liability. Powell believed the SEC had exceeded its authority by imposing liability under Rule 10b-5 far beyond legislative intent, and should have gone to Congress to obtain additional authority. Justice Powell was able to do what Justice Frankfurter had mostly failed at. His success in getting the Court to accept securities cases he wanted the Court to rule on, and in winning over a majority of his colleagues to his more restricted view of SEC power, led to what one scholar called a “counter-revolution” in securities law.58


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Footnotes:

(49) A. C. Pritchard, “Justice Lewis F. Powell, Jr. and the Counterrevolution in Federal Securities Law, 52 Duke Law Journal 841 (2003).

(50) Pritchard, Counterrevolution, 844-860.

(51) 412 US 723 (1975)

(52) 425 US 185 (1976)

(53) 430 US 462 (1977)

(55) 445 US 222 (1980)

(56) 463 US 646 (1983)

(57) 484 US 19 (1987), decided 4-4 after Powell’s retirement.

(58) Pritchard, Counterrevolution, 840-860.


Related Museum Resources

Papers

October 10, 1973
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
March 6, 1975
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
March 1977
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
March 27, 1978
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
March 27, 1978
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
May 6, 1978
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
January 4, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
January 7, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
January 31, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
February 1, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
February 4, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
February 5, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
February 6, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
February 11, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
March 3, 1980
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
March 4, 1980
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
March 5, 1980
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
May 21, 1980
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
May 28, 1980
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
April 4, 1983
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
May 29, 1983
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
June 1983
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
June 10, 1983
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
June 27, 1983
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
June 28, 1983
image pdf (Thurgood Marshall Papers, courtesy Library of Congress)
June 28, 1983
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
July 8, 1983
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
July 19, 1983
transcript pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
April 17, 1984
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
June 1984
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
October 12, 1985
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)
February 27, 1989
image pdf (Harry A. Blackmun Papers, courtesy Library of Congress)

Photos

1973

(standing) Justice Lewis Powell, Justice Thurgood Marshall, Justice Harry Blackmun, Justice William Rehnquist; (seated) Justice Potter Stewart, Justice William Douglas, Chief Justice Warren Burger, Justice William Brennan, Justice Byron White

(Courtesy of Library of Congress )

Galleries

Fair To All People: The SEC and the Regulation of Insider Trading

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