Federal Securities Regulation: Are We Moving Toward Merit Review?

I just ran a Westlaw search in “All Law Reviews, Texts, and Bar Journals” for “’first amendment’ /p ‘securities regulation’ /p ‘merit review’” and did not get a single hit.  However, I think an argument can be made that these are related concepts.  To begin with, the history of our modern federal securities regulation regime traces back to a point in time shortly after the Great Crash of 1929, when regulators confronted a choice between implementing a regime based on merit review and one based on disclosure.  As Daniel Morrissey put it in his article, “The Road Not Taken: Rethinking Securities Regulation and the Case for Federal Merit Review”:

By adopting disclosure as the underlying philosophy of the federal securities laws, the framers of that legislation put too much faith in the prudence of investors and the self-policing mechanisms of the capital markets. As such, they passed up the opportunity to exercise more meaningful control over the quality of issued securities by a regime of merit regulation.

Meanwhile, Larry Ribstein wrote extensively about the interplay of securities regulation and the First Amendment before his untimely passing:

I have been writing for some time about the First Amendment and the securities laws.  In a nutshell, the formerly inviolate notion that the securities laws are a First-Amendment-free zone has always been constitutionally questionable.  The questions multiply with the expansion of the securities laws.  The Supreme Court’s recent broad endorsement of the application of the First Amendment to corporate speech in Citizens United signals that we may finally get some answers. The bottom line is that securities regulation that burdens the publication of truthful speech is subject to the First Amendment.

Put these two items together and it seems worth considering whether merit review might be a proper regulatory response to a Supreme Court that seems quite willing to strike down regulation of corporate speech.