The WSJ published a piece over the weekend based upon emails provided to Congress from Mary Schapiro, the Chairman of the SEC.
The article looked at the decision by the Commission to abandon a plan to implement a provision in the JOBS Act (the elimination of the ban on general solicitations) through an interim final rule, thereby avoiding the legal requirement of notice and comment. The decision was essentially attributed to a single email received from a consumer advocate on August 7 and the concern by Chairman Schapiro over her "legacy."
The reality is, however, more ordinary than the article suggests. For one thing, the August 7 email did not tell the Chairman anything that she did not already know. Discussions and criticism of the strategy of an interim final rule had already surfaced. Broc Romanek noted it here on August 6 and acknowledged that "there are some that are not happy about this fast-track approach to an important rulemaking..." So did Reuters (noting that the approach "is likely to generate concern from critics who have said that lifting the advertising ban without studying the rule first may unduly harm investors.").
Treasury held a meeting with investor groups on August 1 to discuss the JOBS Act. As Reuters reported: "The SEC's plans to adopt an interim rule is expected to be discussed at the Treasury Department meeting on Wednesday". Thus, the Commission was fully aware of the controversy sparked by the proposed interim final rule before receipt of the email on August 7.
Moreover, published reports indicated that the SEC ultimately changed plans for legal reasons. Under the Administrative Procedures Act (APA), rules must be issued in proposed form and the public given an opportunity to comment. Notice and comment can sometimes be eliminated but only in rare circumstances. Moreover, the agency must justify the failure to use notice and comment by showing something akin to an emergency. No such emergency was present.
The need for a comment period and the legal risks if one were not provided were raised with the Commission. Given the willingness of the DC Circuit to strike down SEC rules on flimsy grounds (Business Roundtable being a case in point), the Commission could not afford to ignore this possibility. Litigation concerns, therefore, apparently figured prominently in the decision to abandon the interim final rule approach. Indeed, the WSJ article noted that the Chairman gave as a reason for considering a change in plans the need for a comment period ("if the investor groups "feel this strongly, it seems like we should give them a comment period.").
In other words, the process largely worked as it should. The Commission was prepared to act by administrative fiat in the adoption of a rule, perhaps out of the mistaken view that doing so was uncontroversial. The criticism from investor groups indicated the need for a comment period. The Commission recognized this and appropriately issued a proposed rule that provided an opportunity for comments. Indeed, the proposal has generated a considerable number of comments.
If there is a legacy, it is that process matters and that in this case the Commission ultimately opted for the correct process.