National Center for Public Policy Research v. Securities and Exchange Commission; Alliance for Fair Executive Recruitment v. Securities and Exchange Commission
WASHINGTON, DC, March 22, 2024 (Globe Newswire) — The Neoliberal and Human Rights Alliance has filed its opening brief. National Center for Public Policy Research vs. SEC encourage big bank The U.S. Court of Appeals for the Fifth Circuit has ordered the SEC to invalidate Nasdaq's unconstitutional “Board Diversity Rule” promulgated without legal authority. These rules impose gender, race, and sexual orientation quotas on board members of Nasdaq-listed companies. Additionally, the rules require companies that fail to meet board seats to explain why or face involuntary delisting from the stock exchange. Under related rules, the SEC will provide companies that are unable to meet their quotas on their own with a list of companies that have met their quotas. 5th Circuit panel upheld board diversity rules; big bank The court granted NCLA's request to rehear the case. The Securities Exchange Act of 1934 limits the SEC's regulatory role to promoting fair and honest markets, investor protection, orderly and efficient markets, and promoting capital formation. The SEC cannot step outside of statutory guardrails as it did in this case.
Nasdaq reported that investors have expressed interest in discriminating against some companies and favoring others based on the gender, race, and sexual orientation of their directors. In response, Nasdaq proposed rules to the SEC that would help investors discriminate with respect to these identities. Certain rules require all Nasdaq-listed companies to include a minimum quota of individuals of a particular gender, race, or sexual orientation on their board of directors, or to explain why their board does not meet such quotas. is obligated to do so. The rules also require companies to publicly disclose information about directors' self-identified gender, race and sexual orientation. The SEC accepted Nasdaq's argument that the diversity rules were in the interests of investors without conducting an independent analysis.
The Securities Exchange Act specifically prohibits the SEC from approving Nasdaq rules that regulate matters unrelated to the purposes of the Act. Gender, race, and sexual orientation are outside the scope of this law because the SEC itself has determined that these demographic characteristics have no rational relationship to corporate performance or investor returns. Nevertheless, the SEC has stated that mandatory descriptions and disclosures about gender, race, and sexual orientation will be It approved these rules, concluding that they promote “fair and orderly markets.” The Fifth Circuit panel in this case left that flawed reasoning in place, without addressing the statutory prohibition that would invalidate the rule. These measures also force speech that negates the First Amendment.
Nasdaq also provided companies whose boards do not meet the regulation's diversity quotas with access to a list of “board-ready” director candidates, while the SEC failed to analyze how the company (the company hired to provide the service) determines when a candidate will be hired onto the board. “The Board is Ready.” By failing to thoroughly and independently investigate these issues before approving the rule, the SEC acted arbitrarily and capriciously and violated the Administrative Procedure Act. . I am looking forward to the future of NCLA. big bank The Fifth Circuit addresses each of these issues in turn.
NCLA issued the following statement:
“Executive agencies have only the powers legally assigned to them by Congress. By approving the Nasdaq Board Diversity Rule, the SEC not only clearly exceeds its statutory authority, but also by the very provisions of the Act. He has usurped authority that is expressly prohibited.”
— Peggy Little, NCLA Senior Litigation Attorney
“Pressing companies to hire directors based on race or gender goes far beyond the scope of the regulatory authority afforded by securities laws. big bank The Fifth Circuit should block the SEC and Nasdaq's attempts to abuse its statutory authority to encourage illegal and unAmerican discrimination. ”
— Sheng Li, NCLA Litigation Attorney
“The SEC's power grab is unprecedented. Not only is it trying to seize power from the states, the traditional regulators of boards, but it is also trying to exercise powers that Congress never gave it. We created the SEC to ensure orderly markets in the United States, not to authorize Gary Gensler's social engineering experiments.”
— Mark Chenoweth, NCLA President
Please see the case study page for details. here and watch the video of the incident here.
About NCLA
NCLA is a nonpartisan, nonprofit civil rights organization founded by noted legal scholar Philip Hamburger to protect constitutional freedoms from encroachment by the administrative state. NCLA's public interest litigation and other pro bono advocacy work seeks to rein in the unlawful power of state and federal agencies and foster a new civil rights movement that helps restore Americans' fundamental rights.
###
CONTACT: Ruslan Moldovanov New Civil Liberties Alliance 202-869-5237 ruslan.moldovanov@ncla.legal
