Securities and Exchange Commission Historical Society

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

An Era of Caution

The SEC Adjusts

- May 2, 1978 SEC General Counsel’s Office

During the counter-revolution, the U.S. Securities and Exchange Commission once again read the tea leaves and adjusted to the shift on the Supreme Court. As it once watched the “Four Horsemen” hammer the New Deal, the SEC grew wary of bringing cases it might lose before the Supreme Court, cases which could establish lasting precedent. After having been stung by the decisions led by Justice Powell, the SEC began to focus on other areas of securities law, particularly reform of the national stock markets, accounting standards and corporate governance issues. In each of these areas, the SEC avoided forcing the issue into the courts. Working with SEC-developed studies, the SEC chose to collaborate with affected groups rather than litigate each of the issues. In many ways, the SEC used its expertise, not only in securities markets but also in the area of securities appellate litigation, to forestall court action that might have proven detrimental to the overall regulatory goals of the agency.59

Justice Powell left the Supreme Court in 1987. From that time forward, the Supreme Court has heard fewer securities cases and their decisions have been almost evenly decided between expansive and restrictive interpretations.60 The personal archives of the sitting justices, and those only recently departed, are not available to researchers, and the full story of the working of the Court remains hidden. History tells us that it is likely that the departure of Justice Powell, and the lack of a replacement with a specific interest or strong expertise in securities law, permitted the SEC, which remained a respected institution despite its occasional setback, to reassert its administrative expertise before the courts. The limited ability of a litigant to appeal its case to the Supreme Court meant that the ultimate arbiter would likely decide fewer cases.

Success to the SEC meant winning in the lower courts, especially where their interpretation of the law was closely related to Supreme Court precedence. Even in areas of administrative ambiguity, the SEC often prevailed in the lower courts and saw the Supreme Court deny numerous petitions for certiorari.61

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