Justices Scalia and Thomas Weigh in on Deference to SEC Interpretation of §10(b)

The Supreme Court denied a writ of certiorari in Whitman v. United States, No. 14-29 (Nov. 10, 2014).  But Justices Scalia and Thomas agreed with the denial but signaled a desire to hear a more appropriate case on a key issue: whether the courts should defer to SEC administrative expertise in interpreting securities law provisions that contemplate both criminal and administrative enforcement.  They were skeptical of the notion that the SEC could, by adopting interpretations of securities laws like section 10(b) of the Securities Exchange Act of 1934, create a theory for criminal liability under that statute.  In this case, the SEC’s interpretation of section 10(b) in SEC Rule 10b5-1 (laying out SEC views on insider trading violations) was at issue.  Justices Scalia and Thomas questioned the ability of the SEC,or any other administrative/executive entity, to lay out the scope of criminal liability under a statute.

In his usual pithy approach. Justice Scalia noted that the effort of King James I to “create new crimes by royal command” was rejected by judges because “the King cannot create any offence by his prohibition or proclamation, which was not an offence before.” Scalia quipped: “James I, however, did not have the benefit of Chevron deference.”  (Lawyers do have an unusual sense of humor, don’t they?)  He wrote that providing deference in these cases seemed inconsistent with the “rule of lenity” used to interpret the scope of criminal laws.

The petitioner did not seek review on the issue of deference, and the “procedural history of the case” made it “a poor setting in which to reach the question,” but Justices Scalia and Thomas are “receptive to granting” a petition in which the issue is properly presented.

If you are interested, I’ve provided a copy of Justice Scalia’s statement here: Whitman v United States opinion in denial of certiorari.

Straight Arrow

November 11, 2014

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  1. Pingback: SEC Wins First Skirmish on Constitutional Challenge to Chau Administrative Proceeding | Securities Diary

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