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Court Ruling May Delay Dodd-Frank Regulations

A recent ruling by U.S. Court of Appeals in Washington, D.C., faulted the ""Securities and Exchange Commission"":http://www.sec.gov/ (SEC) for failing to perform a sufficiently thorough economic impact analysis before it moved forward with a new rule, according to ""_Bloomberg News_"":http://www.bloomberg.com/news/2011-07-22/dodd-frank-act-s-rules-may-be-at-legal-risk-after-sec-appeals-court-defeat.html. The decision could roll over onto provisions established by the Dodd-Frank Act, delaying those provisions and preventing new rules from going into effect.


Proposed by the commission last year, the SEC reportedly intended the rule to give more heft to candidates in line for positions on company boards and help investors oust unwanted directors. According to _Bloomberg_, this makes yet another case the SEC lost in court as the commission works to put on paper and finalize some 100 rules that Dodd-Frank requires it to write.

""The commission inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters,"" the news service reported U.S. Circuit Judge Douglas Ginsburg as writing.

""The entire Dodd-Frank implementation is at heavy risk because if any of these rules are challenged by the courts, they won't survive,"" _Bloomberg_ reported Hal Scott, ""Harvard Law School"":http://www.law.harvard.edu/index.html professor and director of the Program on International Financial Systems, as saying.


Rule-writing is an extensive process for federal regulatory agencies, one that can take up to one or more years. Economic impact analyses figure into the marathon as one of the last steps before a rule is approved by an agency, with lengthy commentary periods, agency-to-agency consultations, legal reviews, and more serving as roadblocks in the approval process.

""I don't see notice and comment as a panacea for bad regulation,"" Mark Calabria, director of financial regulation studies at the ""Cato Institute"":http://www.cato.org/, said in a past interview with _MReport_.

This rule got the green-light in May after SEC commissioners voted in approval by 3 to 2. Among the changes wrought by the rule: a $100,000 reward for whistleblowers who came forward to federal authorities about corporate rule-breaking that required fines and penalties of more than $1 million, according to the ""_Wall Street Journal_"":http://online.wsj.com/article/SB10001424053111904772304576470313933175814.html.

The _Journal_ reported that a dissenting commissioner who cast a nay vote said that she felt concern over procedures by the SEC that neglected tallying the final costs to employers.

Despite the ruling, there is still more rule-writing to be done, according to _Bloomberg_. Dodd-Frank charged the SEC with responsibility for some 70 proposed rules.

""The court has sent a clear signal that the agency must continue to improve its efforts in that area,"" the news service reports Eugene Scalia, a lawyer at ""Gibson, Dunn & Crutcher LLP"":http://www.gibsondunn.com/default.aspx, as saying. ""The decision is notable for the number of different errors it finds in the commission's analysis and the degree for which those errors go to the very core of the commission's argument.""

Richard Eckman, a managing partner at ""Pepper Hamilton LLP"":http://www.pepperlaw.com/ and chair of the law firm's financial services practice group, went further for a past story by saying that agencies often use orders and guidance in addition to rule-writing authority. He also said that federal agencies are anything but foreign to suits and court decisions.

A contentious suit brought against the ""Environmental Protection Agency"":http://www.epa.gov/ in 2000 successfully strong-armed the agency into overturning controversial guidance that the presiding court said ""should have been subject to the rulemaking procedures.""