Flannery v. Securities and Exchange Commission

Case Updates

The First Circuit vacated the SEC order because the court determined that the SEC’s findings that two State Street Bank officers made misleading material statements and omissions were not supported by substantial evidence. The petitions for review are granted.

In its brief to the First Circuit, the U.S. Chamber supported two petitions for review challenging orders issued by the Securities and Exchange Commission (SEC or Commission) against two officers of State Street Bank. After a trial, an Administrative Law Judge (ALJ) ruled against the SEC and in favor of the two individuals—a rare feat. But the SEC, in a 3-2 decision, reversed the ALJ and imposed monetary and other penalties against the individuals for allegedly misleading material statements and omissions.

The Chamber’s amicus brief argues, first, that the Commission’s determination regarding materiality was flawed because the Commission did not take into account that the communications were direct and personal to a small group of investors and that they were made to sophisticated institutional investors and professional advisors. Second, the Chamber’s brief argues that the Commission is not entitled to Chevron deference for its interpretation of any ambiguous provisions of the Securities Act that, as here, are susceptible of both civil and criminal enforcement. Instead, principles of lenity require that statutory ambiguity be construed in the light most favorable to the defendants—and not the Commission.

Jonathan G. Cedarbaum, Christopher Davies, Daniel Aguilar, and John Byrnes of Wilmer Cutler Pickering Hale and Dorr LLP represented the U.S. Chamber of Commerce as co-counsel to the U.S. Chamber Litigation Center in this case.