As we have discussed at length, the Supreme Court has before it a case, Stoneridge v. Scientific-Atlanta (the briefs are posted on the DU Corporate Governance web site) that would define the reach of the antifraud provisions of the securities laws, particularly the all powerful Rule 10b-5. Despite being an "independent" agency, the Securities and Exchange Commission has no authority to file briefs before the Supreme Court. At most, it can ask the Solicitor General in the Justice Department to file a brief on its behalf or for permission to file its own brief.  We did a post on the SEC's authority to file its own briefs in the Supreme Court here.

In Stoneridge, the Commission voted to request that the Justice Department file a brief. The Justice Department, however, did not. President Bush apparently opposed the efforts as did the Department of Treasury. While the parties made ample use of a brief filed on the issue by the Commission in the 9th Circuit, the views of the principal regulator for the securities markets was otherwise left out (sort of, see the post here).

We have now come to learn (from the Washington Post) that group of prior commissioners (including two prior chairs, one appointed by President Bush) want leave to intervene and file an out of time amicus brief.  The motion was filed on behalf of former Chairmen Arthur Levitt and William Donaldson and former Commissioner Harvey Goldschmid. A copy of the Motion for Leave to File Brief Out of Time and Brief Amici Curiae of Former SEC Commissioners in Support of Petitioner, July 2007 can be found at the DU Corporate Governance web site.  What do these commissioners think of the the 8th Circuit opinion exonerating third parties from liability under Rule 10b-5, even for sham transactions?  Not much. 

• "The decision below immunizes non-issuers who commit securities fraud from private liability merely because they were cunning enough to avoid making a public statement. Those who – with purpose and effect – actively engage in fraudulent acts as part of a scheme with the issuer to defraud investors should be held primarily liable, regardless of whether they speak to the market, assuming all the other requirements to plead and prove a claim under Section 10(b) and Rule 10b-5 are met. Fraudulent scheme liability neither results in undue liability exposure for non-issuers, nor an undue burden upon capital formation. Holding liable wrongdoers who actively engage in fraudulent conduct that lacks a legitimate business purpose does not hinder, but rather enhances, the integrity of our markets and our economy. We believe that the integrity of our securities markets is their strength. Investors, both domestic and foreign, trust that fraud is not tolerated in our nation’s securities markets and that strong remedies exist to deter and protect against fraud and to recompense investors when it occurs. The decision below, if left standing, would dramatically undermine private enforcement of our securities laws and investor confidence in our securities markets."

In other words, not much.  And whether or not the Supreme Court grants the motion, it contains a summary of the argument and is, therefore, a vehicle for getting these views before the Court.  In many ways, these efforts are better for petitioners than if the SEC had actually prevailed on the Solicitor General to file.  Any brief would likely reflect a compromise among the commissioners (already divided on the issue) and a compromise among the other federal agencies.  The resulting effort would likely be quite weak and uninfluential.  With the SEC excluded essentially on political grounds, its views can be articulated by this shadow Commission in a far more forceful manner. 

Nonetheless, having said all of this, it is without a doubt time to reexamine the right of the SEC to file briefs at the Supreme Court without having to get permission from the Solicitor General, at least in the circumstances when the Solicitor General refuses.  The FTC already has this type of authority.