Risk & Compliance

SEC Escapes Suit Over Political Disclosure Rule

The Securities and Exchange Commission will not be forced to consider a rule requiring companies to disclose their political donations.
Matthew HellerJanuary 5, 2016
SEC Escapes Suit Over Political Disclosure Rule

A federal judge has thrown out a lawsuit aimed at forcing the U.S. Securities and Exchange Commission to require that public companies disclose their political contributions.

A watchdog group, Campaign for Accountability, brought the lawsuit in May on behalf of an Aetna investor who claimed the SEC violated the Administrative Procedure Act (APA) by ignoring a rulemaking petition he submitted. Stephen Silberstein had unsuccessfully sued the insurer to force it to reveal its political donations.

In a ruling issued Monday, U.S. District Judge Rosemary Collyer said the SEC’s failure to act on Silberstein’s petition did not amount to an “effective denial” of the petition that would be subject to federal court review.

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“Since the SEC has not denied the petition and Mr. Silberstein has not asserted that the SEC ‘failed to act in response to a clear legal duty,’ it follows that he failed to state a valid APA claim upon which relief can be granted,” she wrote in granting the SEC’s motion to dismiss the case.

Public companies are required to report donations made through political action committees, but they don’t have to report contributions to third parties, including industry groups such as the U.S. Chamber of Commerce that fund ads for and against candidates.

Public Citizen and other groups have been pressuring the SEC to enact a political donation disclosure rule for years, but SEC Chair Mary Jo White pulled discussion of such a rule from the commission’s agenda in 2013.

In the government spending bill passed last month, Republicans in Congress included a provision  that blocks the SEC from issuing a rule in the next fiscal year.

Silberstein argued that shareholders deserve the right to assess whether corporate contributions are in companies’ best interests. A spokesman for the Campaign for Accountability said the group was disappointed with Collyer’s decision and may file an APA claim with the D.C. Circuit Court of Appeals.

Collyer noted that the appeals court has exclusive jurisdiction over challenges to SEC orders, precluding her from reviewing whether the agency engaged in “unreasonable delay” by failing to act on Silberstein’s petition.

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