(Editor’s Note: This post comes to us from Russell G. Ryan of King & Spalding LLP.)
Investors and lawmakers have been clamoring for a more aggressive and nimble SEC, and it looks like they’re about to get it. But at what cost?
In August, the Commission and its enforcement director announced a series of bold new measures designed to expedite investigations, create specialized units to focus on priority cases, and flatten out management of the enforcement division.
Among those measures was a new SEC rule – adopted for a one-year trial period – which for the first time delegates to the agency’s enforcement director the legal authority to issue “formal orders of investigation” without first getting approval from the politically-appointed commissioners. The director himself announced that he will sub-delegate this new responsibility to other senior officials who report directly to him.
In SEC investigations, “formal orders” are significant mostly because they empower staff investigators to issue judicially enforceable subpoenas that require people and companies to turn over documents and give sworn testimony. Without such an order, the staff must rely entirely on voluntary cooperation to obtain information.
Delegation of authority to issue these orders will undoubtedly serve its intended purpose of enabling SEC enforcement staff to act more swiftly and authoritatively in the early stages of their investigations. But the move represents a dramatic departure from historical SEC practice and raises broader questions about delegation and accountability at independent federal agencies.
Like many independent federal agencies from the New Deal era, the SEC exercises a number of quasi-legislative and quasi-executive functions, yet for the most part operates autonomously from either Congressional or Presidential control. Its five commissioners (including its chairman) are appointed by the President for staggered five-year terms and must be confirmed by the Senate, but neither Congress nor the President can remove commissioners from office at will. By law, no more than three commissioners can be from the same political party at any given time.
Although this structure has been upheld by the courts, independent agencies exercise law enforcement powers on inherently shakier constitutional footing than the Cabinet departments and executive agencies operating under full Presidential control, such as the U.S. Department of Justice. Moreover, a critical safeguard in this structure is the presumption that commissioners of an independent agency – the only personnel tethered to the political process by a presidential appointment and Senate confirmation – will be accountable for significant action taken by the agency and its staff.
When it comes to the SEC, issuing formal investigation orders is a sufficiently important responsibility that it should not be delegated by the agency’s commissioners.
…continue reading: Delegation and Accountability at the SEC