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CALIFORNIA CORPORATE & SECURITIES LAW

How Independent Is The SEC And How Independent Should It Be?

Can the President say “You’re Fired!” to an SEC Commissioner?

In a recent post, John Jenkins emphasized the commonly held understanding that the Securities and Exchange Commission is an “independent agency”.  The independence of the SEC, however, is not beyond debate.  In Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 546 (2010), Justice Stephen G. Breyer observed in dissent:

It is certainly not obvious that the SEC Commissioners enjoy “for cause” protection. Unlike the statutes establishing the 48 federal agencies listed in Appendix A, infra, the statue that established the Commission says nothing about removal. It is silent on the question.

Justices Stevens, Ginsburg and Sotomayor joined Justice Breyer’s dissent.  Notably, the majority did not decide that Commissioners may only be removed for cause:

The parties agree that the Commissioners cannot themselves be removed by the President except under the Humphrey’s Executor standard of “inefficiency, neglect of duty, or malfeasance in office,” 295 U.S., at 620, 55 S. Ct. 869, 79 L. Ed. 1611 (internal quotation marks omitted); see Brief for Petitioners 31; Brief for United States 43; Brief for Respondent Public Company Accounting Oversight Board 31 (hereinafter PCAOB Brief); Tr. of Oral Arg. 47, and we decide the case with that understanding.

Id. 487.

Broc cites this memo by Davis Polk & Wardwell LLP that cites 44 U.S.C. § 3502(5).  That statute does, in fact, include the SEC within a list of independent regulatory agencies.  The list, however, is given for purposes of the Paperwork Reduction Act.  Thus, it is hardly the last word on whether the SEC is an independent agency.

I have previously argued that the SEC and other independent agencies are the platypodes of the federal government.  If the SEC is truly an independent agency, perhaps it is time to reevaluate its status.

For more on the SEC’s status, or lack thereof, as an independent agency, see this Harvard Law Review note: The SEC is not an Independent Agency.

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