Stuart Alderoty, Chief Legal Officer of Ripple, recently took to X to voice his stance on a federal court’s criticism of the U.S. Securities and Exchange Commission (SEC). The court ruling in the case of National Association of Manufacturers (NAM) vs. SEC deemed one of the SEC’s actions unlawful, intensifying scrutiny of the agency’s legal judgments.
Alderoty’s remarks were prompted by the court’s rebuke of the SEC for improperly revoking a rule concerning proxy advisory firms. Initially established in 2020 but never enacted, this rule was intended to regulate firms providing voting recommendations to shareholders on corporate governance matters.
The court emphasized that the SEC had failed to adhere to proper legal procedures outlined in the Administrative Procedure Act (APA), which mandates specific guidelines for federal agencies when creating or altering regulations.
Background to the Legal Dispute
The legal dispute revolves around a 2020 SEC rule aimed at overseeing proxy advisory firms, crucial players offering services to shareholders. The rule sought to impose notification and transparency requirements on these firms to ensure fairness in their recommendations. However, shortly after assuming office in April 2021, SEC Chairman Gary Gensler instructed a review of the 2020 rule, leading to its suspension and eventual repeal in November 2021.
Legal Proceedings
Amidst the SEC’s legal battle with NAM, a Texas district court annulled the suspension in June 2022. Despite this, the SEC rescinded key elements of the rule, prompting NAM to challenge these actions as arbitrary. In 2022, the court ruled in favor of the SEC, a decision that NAM subsequently appealed. Last August, the Fifth Circuit Court of Appeals deliberated on the case and has now issued its judgment, criticizing the SEC for sidestepping APA requirements by rescinding rules without a mandated public notice-and-comment period.
Ripple CLO Highlights SEC’s Challenges
Alderoty underscored that the SEC’s actions under Gensler’s leadership were not only unlawful but also indicative of broader issues within the agency’s regulatory framework. He pointedly critiqued Gensler’s leadership, echoing longstanding concerns.
The court highlighted that the SEC expedited the repeal process under Gensler’s directive, portraying it as an overreach of administrative authority. This ruling adds to a string of legal battles challenging the SEC’s decision-making and adherence to legal standards.
In previous instances, courts have faulted the SEC for presenting misleading statements in the DEBT Box case and denied its appeal in the legal tussle with Aaron Govil. These developments have significant implications for Ripple and other entities entangled in legal disputes with the SEC, exposing potential weaknesses in the agency’s regulatory oversight that could affect current and future cases.
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