The United States District Court of Appeals for the District of Columbia Circuit today vacated the Securities and Exchange Commission’s (SEC) proxy access rule (Exchange Act Rule 14a-11). Among other reasons supporting the decision, the Court found that the SEC failed to adequately consider the economic effects of the rule. The Court held that the SEC’s actions were arbitrary and capricious for having failed to consider the rule’s effect upon efficiency, competition, and capital formation, as required by statute.
The Court’s opinion strongly condemned the SEC's careless approach to economic analysis in connection with its hasty adoption of the proxy access rule shortly after the passage of the Dodd-Frank Act:
“[T]he Commission inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.”
Senator Richard Shelby (R-AL), ranking Republican on the Committee on Banking, Housing and Urban Affairs, issued the following statement:
“This decision is an unequivocal validation of the concerns that Republicans have raised repeatedly over the past year. Our regulatory agencies are not undertaking rigorous and deliberate analysis to understand the economic impacts of their actions. This cavalier approach to their job is particularly damaging at a time of painfully high unemployment when American businesses face hundreds of forthcoming rules mandated by the Dodd-Frank Act. This is just the latest in a series of SEC reprimands and confirms the need for Congressional action.”
Senator Mike Crapo (R-ID), ranking Republican on the Subcommittee on Securities, Insurance, and Investment made the following remarks:
“The SEC proxy access rule is the first Dodd-Frank rule that has been challenged in the courts for failing to adequately analyze its economic costs and benefits. The court's unanimous decision to vacate the rule reaffirms that economic analysis matters. Regulators charged with implementing the hundreds of Dodd-Frank rules must take this decision as a wakeup call and take the necessary time to get the final rules right by incorporating the meaningful public comments and economic analysis in their proposed rules.”
In February, all Republican members of the Banking Committee wrote to financial regulators strongly urging them to carefully undertake cost benefit and economic impact analyses in crafting rules pursuant to the Dodd-Frank Act. In May, the Senators also wrote to the Inspectors General (IG) of each financial regulator asking them to conduct a review of the economic analysis performed by the regulatory agency under their supervision. The IG reports confirmed concerns that regulators are not sufficiently taking into account the effect of their actions on those impacted or the broader economy.