A Mighty Wind

On November 13, 2020, the SEC posted a joint statement from SEC Commissioners Hester Peirce and Elad Roisman, who voted against the Commission’s settled enforcement action involving Andeavor LLC, explaining the reasons for their votes. Basically, Peirce and Roisman say that, in the settled action, the SEC took an “unduly broad view of [Exchange Act] Section 13(b)(2)(B).”

The joint statement, issued more than a month after the Commission had met to approve the settlement, is not particularly persuasive. The writing is not easy to digest and the narrative fails to flow from paragraph to paragraph. It has too many footnotes, including one that cites to marketing materials from two major law firms and another with some hooey about thinking and a thought. It includes a terrible metaphor about tools. And it emphasizes the lack of court precedent for the settled action but fails to mention that there just aren’t many relevant court cases to speak of and probably never will be. Most importantly, the statement probably won’t convince any sophisticated securities lawyer that there is a obvious answer as to the appropriate scope of Section 13(b)(2)(B). One gets the sense in reading the joint statement that even the Commissioners themselves weren’t terribly convinced by their analysis.

It’s also important to remember that the Commissioners were writing about a settled enforcement action. Settled enforcement actions can have major significance but are also in a realm where agency discretion is at its zenith. Moreover, many settlements involve rich defendants who are given much more due process than most common criminals ever get, a process that generally flushes out all the major weaknesses in a case before the matter reaches the Commission. It goes without saying that most thoughtful Commissioners weigh policy issues, issues of justice, and the Commission’s mission in deciding whether or not to vote to approve a settlement. And all Commissioners understand that SEC settlements have very little precedential value and are not binding on the Commission in other cases.

It’s also important to consider that many sophisticated and experienced advocates were involved in the process of getting the matter to the settlement table, all of whom were necessarily in favor of the settlement. Andeavor’s attorneys, likely from a top-tier white collar defense firm, were comfortable that the settlement was a reasonable resolution of the matter. Multiple supervisors in the Enforcement Division and staff in the Division’s Chief Counsel reviewed the settlement recommendation before it was circulated to the Commission. After the recommendation was circulated, each Commissioner could request to meet privately with Enforcement staff and get their insights regarding the strengths and weaknesses of the evidence and legal arguments. And before the Commission heard the matter at a closed Commission meeting, the SEC’s General Counsel’s Office reviewed the settlement papers and related memoranda for legal or policy problems. That office would never have supported the proposed settlement if they did not believe the statute could be interpreted to support the staff’s view, and if the General Counsel’s Office did not support the recommendation, in all likelihood the settlement would have been doomed. Finally, the current SEC Chairman, a known expert in the issues involved in the case, voted to support the settlement, concluding that the law could be appropriately applied to the findings of fact.

As a general matter, it’s pretty easy to find shortcomings in almost any enforcement action recommendation but much harder to find a way to make some of them work. Historically some Commissioners have tended to look for all sorts of ways not to support Enforcement recommendations even though often there are often good societal reasons to bring a case, particularly where an important public interest or particular industry problem is in some way addressed by the settlement. Peirce and Roisman burned up a lot of time and energy on their statement about their view of the statute even though it is likely that one of them or both would have voted against the settlement recommendation regardless. Nonetheless, it’s clear they worked pretty hard on the statement and that some people will really like it. Perhaps the best that can be said about it is that the general public now know the two Commissioners’ views on the issue and that Enforcement staff who have developed a similar case know that they are starting with two Commission votes against them.