D.C. Circuit Strikes Down SEC’s Proxy Access Rule

Yesterday, in Business Roundtable v. SEC, the U.S. Court of Appeals for the D.C. Circuit struck down the Security and Exchange Commission Rule 14a-11, the “proxy access” rule on the grounds that the Commission acted arbitrarily and capriciously because it failed “adequately to assess the economic effects of a new rule.” Wrote Judge Ginsburg for the court:

the Commission inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.

Under both the Exchange Act and Investment Company Act of 1940, Judge Ginsburg noted, the SEC is required to consider a rule’s ” effect upon efficiency, competition, and capital formation,” and this it failed to do. The rule had been adopted by a split 3-2 commission vote.

Professor Bainbridge proclaims this “a solid win for the good guys,” and rounds up blogospheric reactions.