Ripple CLO Reacts as Court Slams SEC for Acting Unlawfully 

The Ripple Chief Legal Officer, Stuart Alderoty, takes to X to express his views on another criticism of the U.S. SEC by a federal court.

In a recent ruling, the court found one of the SEC’s actions unlawful in the case of the National Association of Manufacturers (NAM) vs. SEC, further scrutinizing the agency’s legal decisions.

Alderoty’s comments came in response to the court’s decision, which criticized the SEC for improperly rescinding a rule on proxy advisory firms. This rule was originally established in 2020 but never came into effect as planned. 

The court highlighted that the SEC failed to follow proper legal procedures, specifically those outlined in the Administrative Procedure Act (APA), a law requiring federal agencies to follow specific guidelines when creating or changing regulations.

Details of the Ruling

The backdrop to this legal battle centers around a rule introduced by the SEC in 2020 intended to regulate proxy advisory firms—entities that provide services to shareholders, including voting recommendations for corporate governance issues. 

The rule aimed to impose notice-and-awareness conditions on these firms to ensure transparency and fairness in their advice. However, before the rule could be enforced, the SEC, under new leadership, moved to rescind it.

This shift occurred when Gary Gensler took office as the SEC Chairman in April 2021. Shortly after his appointment, Gensler directed the SEC staff to reassess the 2020 rule, leading to its suspension and eventual rescission in November 2021. 

During the SEC’s legal battle with the NAM, a Texas district court vacated the suspension in June 2022. However, the SEC rescinded key portions of these rules, which NAM challenged as arbitrary. In 2022, the court granted summary judgment to the SEC, and NAM appealed this decision. 

The Fifth Circuit Court of Appeals heard arguments last August and has now made a ruling. The court found the SEC’s move problematic, noting that its decision bypassed the APA’s requirements, which mandate a public notice-and-comment period before rescinding or amending existing rules.

Ripple CLO Spotlights SEC’s Woes

Alderoty emphasized that this decision by the SEC under Gensler’s direction was both illegal and indicative of broader issues within the agency’s regulatory approach. He underscored the criticism aimed directly at Gensler’s leadership in his commentary, a trend that has persisted for some time.

Another court slams the SEC. This time for unlawfully rescinding a rule on proxy advisory firms without adhering to the Administrative Procedure Act. The court explains that Gensler personally directed this illegal move.

National Association of Manufacturers v. SEC. pic.twitter.com/NrXrV4x7OG

— Stuart Alderoty (@s_alderoty) June 27, 2024

The court noted that the SEC’s rescission process was expedited under Gensler’s explicit instructions, reflecting an administrative overreach. This ruling adds to a series of legal challenges the SEC has faced recently, where its decision-making processes and adherence to legal standards have come under scrutiny. 

In March, a court criticized the regulatory agency for presenting statements that were misleading in its case against DEBT Box. Moreover, two months back, the court of appeals denied a motion from the SEC to review an earlier decision against it in the legal battle against Aaron Govil.

For Ripple and other entities engaged in legal disputes with the SEC, such judgments are significant. They highlight potential weaknesses in the SEC’s regulatory practices that could influence ongoing and future cases.