Supreme Court Ruling Strips SEC Independence

The Supreme Court ended the independence of federal agencies including the Securities and Exchange Commission in a late June ruling. A president can now fire any SEC commissioner at any time for any reason. The same day, the court preserved Federal Reserve independence. Investors have given the SEC decision little attention. Its consequences for capital markets may be structural.

The SEC exists to enforce truth in financial disclosures. Investors trust that companies and executives will face consequences for material misstatements. That trust depends on the agency's ability to pursue civil and criminal cases without political interference. Without independent enforcement, the calculus for corporate actors shifts. The question becomes whether presidential influence can prevent consequences.

Harvard law professor Noah Feldman wrote about the ruling in a Bloomberg Opinion column. He argued that a decline in enforcement quality would erode confidence in corporate representations. “The result would be gradually declining confidence in the representations made by corporate actors,” he wrote. “That, in turn, would depress the value of all equities and bonds.” No private actor has the SEC's statutory authority or its investigative reach. “The whole point of agency independence was that decisions crucial to the functioning of the nation were supposed to be based on expertise and experience,” Feldman added.

Signs of compromised enforcement are already visible. Margaret Ryan, the SEC's head of enforcement, resigned after six months on the job last March. Reuters reported she had clashed with the commission's leadership over investigations into people close to President Donald Trump's inner circle, including cryptocurrency entrepreneur Justin Sun. At the Commodity Futures Trading Commission, crypto firms have received favorable treatment under a 36-year-old chair who is now the agency's sole commissioner. Trump did not fill the other seats.