The SEC has faced another setback in court, as the Court of Appeals for the Fifth Circuit ruled against the agency in its legal dispute with the National Association of Manufacturers.
Under the leadership of Gary Gensler, the SEC attempted to suspend a 2020 rule aimed at proxy advisory firms, but the court deemed this action a violation of federal regulatory guidelines.
Since assuming the role of SEC chairman, Gary Gensler has initiated numerous legal battles against private companies, achieving mixed results. Recently, however, his fortunes have taken a downturn with a string of losses, many of them high-profile. The most recent defeat came in his effort to revoke a 2020 rule that extended the SEC’s oversight to proxy advisory firms.
The saga began in July 2020 when, under former chair Jay Clayton, the SEC broadened its supervision to include proxy advisory firms. These firms play a pivotal role in the capital market by collecting data on board proposals and advising shareholders during voting, thus influencing the decisions of public companies.
Naturally, the SEC argued that overseeing these firms was necessary to prevent market manipulation, securing federal authorization in 2020 to regulate them.
Enter Gensler. Upon assuming office, he promptly instructed his team to review the 2020 rule with an eye towards rescinding it. Legal battles ensued, with the National Association of Manufacturers leading the charge to maintain SEC oversight of the sector.
Since then, NAM and the SEC have been embroiled in legal disputes culminating in a ruling by the US Court of Appeals for the Fifth Circuit, which sided against the SEC this week, marking another significant loss for Gensler.
The court criticized the SEC for improperly rescinding the proxy advisory firm rule without following the Administrative Procedure Act. It specifically noted Gensler’s personal involvement in this unlawful action.
Commenting on the ruling, NAM’s Chief Legal Officer Linda Kelly emphasized the importance of federal agencies adhering to the rule of law, regardless of changes in administration. She stressed that manufacturers rely on the SEC for stable regulatory guidance in the nation’s leading capital markets, a responsibility she believes the agency neglected by repealing the sensible compromise of the 2020 proxy advisory firm rule.
This recent defeat adds to a series of setbacks Gensler has faced, not only in proxy rules but also in other arenas such as cryptocurrency regulation. Despite some wins, Gensler has encountered challenges, notably in the high-profile case against Ripple over whether XRP qualifies as a security.
As the Ripple lawsuit nears its conclusion, the SEC faces mounting pressure, with expectations that Gensler may need to adjust his strategies further. Initially seeking substantial penalties from Ripple, recent developments suggest a potential settlement for a fraction of the original amount, indicating a possible victory for Ripple.
Gensler’s handling of these cases could shape his legacy at the SEC. Already, criticism has emerged from legislators and industry insiders, some of whom view him as a liability, particularly during a critical election year.
Meanwhile, the XRP community remains resilient, though it has not reached the peaks of recent bull markets. Despite fluctuations, XRP remains one of the largest projects in the blockchain space, currently trading at $0.479 with a market cap of $26.67 billion.
In conclusion, while facing legal and regulatory challenges, the SEC under Gensler’s leadership navigates turbulent waters, its decisions impacting not just the agency’s operations but also the broader financial and regulatory landscape.