The three remaining SEC commissioners voted to end its defense of the climate-risk disclosure rule, according to a March 27 press release that offered little explanation for the commission’s decision.
The announcement acknowledged that the rule, which was finalized March 6, 2024, faced opposition from states and private parties that sued to halt implementation of the rule, which is currently on hold pending a decision by the U.S. Eight Circuit Court, which is considering arguments filed during the tenure of former SEC chair Gary Gensler.
Following the change in presidential administration, “the Commission withdraws its defense of the rules and that Commission counsel are no longer authorized to advance the arguments in the brief the Commission had filed,” according to the announcement.
“The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules,” acting SEC chair Mark Uyeda said in Thursday’s announcement.
The vote follows a Feb. 11 statement from Uyeda asking the court to delay any decision on the case to allow the SEC to reconsider the arguments it had already filed with the court.
In that statement the SEC noted that the agency put the rule on hold almost immediately after it was approved by the commission to await the result of lawsuits seeking.
It also said the rule is “deeply flawed and could inflict significant harm on the capital markets and our economy,” though the statement provided no evidence for that other than to point out that “both Commissioner Peirce and I voted against the rule’s adoption.”
“The Commission’s briefs previously submitted in the cases consolidated in the Eighth Circuit do not reflect my views,” Uyeda wrote.
The move is an illegal effort to “dismantle” a rule for political reasons without going through the normal legal process required by the Administrative Procedure Act, according to a separate statement from Caroline Crenshaw, the sole Democrat currently serving on the Commission.
“We are apparently letting the Climate-Related Disclosures Rule stand but are withdrawing from its defense in court,” Crenshaw wrote. “This leaves other parties, including the court, in a strange and perhaps untenable situation. In effect, the majority of the Commission is crossing their fingers and rooting for the demise of this rule, while they eat popcorn on the sidelines. The court should not take the bait.”
The Administrative Procedure Act requires that a regulation has been approved by a majority vote of the Commission, and has been published in the Congressional Record cannot be withdrawn or modified without going through the formal process of proposal, public comment and confirming vote by the Commission, Crenshaw wrote.
“There are no backdoors or shortcuts. But that is exactly what the Commission attempts today,” Crenshaw wrote.
“We do not have license to wholesale abandon agency action simply because the now-constituted Commission would not have supported the rule when it passed. The new majority cannot now rewrite history to change the outcome of a properly held Commission vote,” Crenshaw wrote.
Instead, the SEC should ask the court to stay implementation of the rule until the agency “comes up with a rule it is prepared to defend,” Crenshaw wrote.
If the SEC refuses to defend its own actions, the Eighth Circuit should appoint legal counsel to defend the rule using the briefs already filed by the SEC, which are “substantively sound” and reflect no changes in either relevant statutory authority or new judicial precedent, Crenshaw wrote.
A requirement by the Eight Circuit to require a vigorous defense would limit an effort to pursue a political goal by unlawful means, Crenshaw wrote.
