This article is adapted from the introduction to the third edition of Investment Company Determination Under the 1940 Act: Exemptions and Exceptions, published by the ABA Business Law Section in February 2025.
In its recent decision in Loper Bright Enterprises v. Raimondo,[1] the U.S. Supreme Court abandoned the “Chevron doctrine,” which generally required courts to defer to the interpretation of an unclear statute by the regulatory agency charged with administering that statute. Instead, courts are now required to exercise their independent judgment on the interpretation of an ambiguous statute. This article will highlight some considerations for the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”), and for lawyers who practice before the SEC, following Loper Bright.
I. Considerations for the SEC
The federal securities laws, like any complex statutory scheme, contain language that is, or that in particular situations can be, ambiguous. As an obvious example, the courts, the Commission, and sometimes Congress have wrestled repeatedly with the meaning of the term “fraud” in Section 10(b) and Rule 10b-5 of the Securities Exchange Act, sometimes in the context of insider trading practices, but also in a host of other contexts. The Commission sometimes adopts rules and regulations that fairly clearly seek to interpret potentially unclear statutory provisions, such as (among many others) the safe harbor provisions governing when an employee of a company assisting that company in a fundraising transaction is not acting as a broker-dealer, when a foreign broker-dealer operating in the United States does not need to register in the United States as a broker-dealer, when an investment adviser can manage a group of virtually identical advisory accounts without being deemed to be operating a registered fund, and when certain insurance products are not deemed to be securities.
In other cases, Commission rules and regulations that are intended to be proscriptive, rather than safe harbors, can also interpret ambiguous statutory provisions. As one example, Commission rules providing definitions for otherwise undefined terms used in the federal securities laws arguably are the poster child for interpreting ambiguous statutory provisions. But rules interpreting other parts of the federal securities laws also can involve interpretations of ambiguous statutory provisions. For example, is the Commission correct that the disclosure requirements of the Securities Act and the Securities Exchange Act are broad enough to require a mandatory disclosure regime focusing on climate change?
In addition, the Commission sometimes issues interpretations, sometimes as stand-alone statements and sometimes in connection with a rulemaking, that are not rules, and are just interpretations. Arguably, the fact that the Commission decided to give its interpretation of a particular statutory provision is evidence of that provision potentially being ambiguous, at least in the particular factual context in which the Commission discussed its interpretation.
a. Application of Loper Bright to Ambiguous Provisions
Under Loper Bright, the salient question ultimately is not whether the Commission thinks that a statutory provision is ambiguous; the question is whether the reviewing court thinks that the statutory provision is ambiguous, either as a whole or as applied to a particular factual situation. A court is no longer required to give deference to SEC rules, regulations, and interpretations that interpret a provision of the federal securities laws that is ambiguous, or that the court determines is ambiguous.
This does not mean, however, that the SEC’s statutory interpretations are irrelevant. The Loper Bright decision makes it clear that a court can decide to rely on or give deference to an agency’s expertise in interpreting an ambiguous statutory provision if the court finds that the agency’s interpretation is well reasoned and persuasive. By contrast, a court might decline to accord much or any weight to a Commission interpretation of an ambiguous statute if the court determines that the Commission’s interpretation was not the best legal interpretation of the relevant statutory provisions, and/or if the Commission’s legal analysis explaining its interpretation does not persuasively explain why that is the best legal interpretation of the relevant statutory provisions.
Loper Bright does not appear to have any direct bearing on an agency’s authority to adopt a rule; presumably that has always been, and remains, governed by long-standing judicial methods of interpreting the congressional intent in the statutes authorizing (and limiting) the agency’s rulemaking authority. In practice, however, the questions of an agency’s rulemaking authority and the validity of its statutory interpretations can at times blur.
The Loper Bright decision also offers the Commission and the Staff, and maybe especially the Staff, an opportunity. Loper Bright should motivate both the Commission and the Staff to seek to make their interpretations, both those that they adopt in the future and those that they have previously adopted, more legally persuasive and, where appropriate, more legally reasonable, in light of the statute or statutes relevant to those interpretations. Post–Loper Bright, the Commission and the Staff have a significant opportunity, through well-reasoned and persuasive legal interpretations, to potentially persuade courts to adopt their interpretations on securities law issues, even when the Commission is not a party to the relevant lawsuit.
b. Relevance of Staff Interpretations
An interesting corollary of the Loper Bright decision is that Staff interpretations, such as through no-action letters, can now be as relevant to a court as Commission interpretations. Following Loper Bright, the Commission’s interpretive views on ambiguous statutory provisions are not necessarily subject to special deference. Rather, the principal question faced by the court is what the court thinks is the correct statutory interpretation. In making this determination, a court might rely on a well-reasoned, persuasive legal discussion in a Staff no-action letter or other Staff interpretation every bit as much as it might rely on a well-reasoned, persuasive legal discussion in a Commission rule-making or interpretive release.
This possibility to some extent undercuts the relevance of the Commission’s oft-stated position that only the Commission, and not the Staff, speaks for the Commission. That statement is, of course, still true true—but at least in a post-Loper Bright court proceeding, a well-reasoned and persuasive Staff legal interpretation can be an important component of a court decision, even though it is not a Commission statement.
c. Importance of Offering the Best Legal Interpretations/Conclusions
Following the Loper Bright decision, the Commission and the Staff should consider taking a number of actions to improve the likelihood that courts will interpret ambiguous securities law provisions consistently with how the Commission and the Staff interpret those provisions. In each case, the actions of the Commission and the Staff should be intended to provide a well-reasoned and persuasive legal interpretation, with a laser focus on why that interpretation is the best legal interpretation of the relevant statute or statutes.
When it is able, the Staff might review and, where appropriate, supplement or revise its more important existing no-action letters and other interpretations. In many cases, the Staff offered very little of its own analysis as to the basis for its interpretations. For example, in a number of no-action letters, the Staff has summarized arguments made by counsel, and stated that it agreed with the conclusion without necessarily agreeing with counsel’s arguments. In relatively few cases did the Staff present a detailed analysis of why its interpretation was the best legal interpretation of the relevant statutory provision. Moving forward, the Staff should consider including in its no-action letters and other interpretations, as a matter of course, a well-reasoned, persuasive legal analysis of why its interpretations are not only consistent with the relevant statutes but also are (in its view) the best legal interpretations of those statutes.
Just as the Staff should consider reviewing its prior no-action and other interpretive positions in light of Loper Bright, the Commission also should consider engaging in a similar revision of its most important prior interpretations, and should consider revising its approach in the releases accompanying interpretations of the securities laws. This is the case both for statements that are unequivocally statutory interpretations and for rules and regulations that involve interpreting a potentially ambiguous statute.
Often, the Commission’s releases in these cases lack significant analysis of why the interpretation the Commission is taking is the best legal conclusion. In many cases, the Commission’s releases seem to focus significantly on why its interpretation is a good policy, or makes economic sense, or on other equally valid considerations. But what the Loper Bright Court appears to require is the best legal interpretation of the relevant statutes.
Moving forward, Commission releases adopting certain rules or interpreting specific statutory provisions might include a “Loper Bright” section that specifically focuses on the relevant statutory language, court cases, and administrative history, and carefully analyzes, as a court might, why the Commission believes its interpretation is the best legal interpretation of the relevant statutory language.
To be fair, Loper Bright presents challenges to the Commission, in part because of specific requirements that the Commission must follow, such as the requirements for the Commission to conduct certain economic and cost-benefit analyses when it adopts rules. These requirements may be somewhat divorced from the question of what the best legal interpretation of a given statute is. The Commission (like many regulatory agencies) also is subject to political interests and pressure that may sometimes affect its decision-making and statutory interpretations.
Courts, however, are not subject to these requirements and pressures; they are bound by the Loper Bright decision. As a result, courts may sympathize with the myriad competing considerations that the Commission is statutorily required to consider, but after Loper Bright, their inquiry likely will focus on the best legal interpretation of an ambiguous statute. Presumably, that must be the Commission’s focus when issuing legal interpretations of the federal securities laws as well. Economic, cost-benefit, and similar considerations, important as they are, presumably must be made after the determination of, and in the context of, the best legal interpretation of the relevant statute or statutes.
II. Considerations for Lawyers Practicing Before the SEC
Loper Bright also may offer lessons to lawyers who practice before the SEC. Perhaps most importantly, lawyers who are, for example, assisting a client in commenting on an SEC rule proposal should consider including a legal analysis and discussion of why their comments reflect the best legal interpretation of the relevant statutory provisions. This is, at least in some cases, a change from how many lawyers typically have sought to persuade the SEC or the Staff to accept their positions. For example, often in rule proposals the SEC specifically seeks comment on industry practices, economic considerations, and other matters that are not purely legal. Presumably, the Commission will, and should, continue to request this information. As discussed above, however, following the Loper Bright decision, the SEC should consider this information in light of what it determines to be the best legal interpretation of the relevant statute. Counsel helping a client respond to such requests for comment should therefore consider including not only the responsive information but also a proposed interpretation of the relevant statute that is consistent with that information, along with a legal analysis of why that interpretation is the best legal interpretation of that statute.
Similarly, a lawyer assisting a client in seeking a no-action or interpretive letter from the Staff should consider including a legal analysis of why the requested relief is the best interpretation of the relevant statute. Often, no-action letter requests focus significantly on relevant past Staff no-action letters and, where available, Commission interpretations. The requests sometimes include relatively little analysis of court cases and principles of statutory interpretation.
Whether addressing the Commission or the Staff, counsel also should consider including a discussion of relevant court cases interpreting statutes outside of the federal securities laws, when those cases are or may be relevant to the way that a court would consider the interpretation of a particular provision of the federal securities laws.
Finally, lawyers may want to reconsider some of their opinion practices following Loper Bright. In the past, lawyers may have been willing to issue “unqualified” opinions based on the existence of a Commission rule or statement interpreting a provision of the federal securities laws. Because legal opinions generally opine on what a court would determine and not on what the SEC would determine, and because a court no longer is necessarily required to defer to SEC interpretations of the federal securities laws, lawyers may want to consider whether a Commission rule interpreting a statute (or other statutory interpretation) is a sufficient basis on which to issue an unqualified opinion.
Benjamin D. Rosenblum is an associate at the law firm Cleary Gottlieb Steen & Hamilton LLP. This article reflects the views only of the authors and does not necessarily reflect the views of Cleary Gottlieb, its other lawyers, or Cleary Gottlieb’s clients.
No. 22-4751, 2024 WL 3208360 (U.S. June 28, 2024). ↑
