SideBar

Republican SEC commissioners have repeatedly made their views known about comment periods that they viewed as inadequate during Gensler’s tenure. For example, in Peirce’s remarks in 2021, she observed that the

“notice and comment process is intended to be a dialogue. The regulatory conversation flows only when the Commission affords the commenting public sufficient time both to review and analyze proposals thoroughly and to formulate fully articulated opinions and suggestions. Analyzing a multi-hundred page rulemaking in the context of intricate markets and an already complicated set of securities and other relevant laws is not an easy task. Such analysis takes time. Thirty days is typically not enough time to get feedback on a rule proposal. In fact, ‘a comment period . . . should generally be at least 60 days.’  For complicated rulemakings or at times when we have many rulemakings outstanding simultaneously, 90-day comment periods are likely more appropriate. Short comment periods are particularly problematic when they coincide with holidays, end-of-year operational obligations, or other periods in which commenters’ staff are likely to be unavailable or occupied with other time-sensitive obligations. Public commenters help the Commission to look at rules in light of their unique experiences. They bring a broad range of perspectives, technical expertise, and deep, personal experience to their comments. In so doing, they help us to see things we otherwise would not. Sometimes they identify better ways to tackle a problem or point out flaws with rules that we might not have found on our own.”

Roisman, commenting on the Rule 10b5-1 proposal, objected that, not only was the 45-day comment period “shorter than our customary comment periods, which have typically been 90 or at least 60 days, these brief comment periods fall over the course of several major holidays.  They also overlap with comment periods for five other proposed Commission rules.  If the Commission votes to propose all four of the new proposals which we are considering at this meeting, the public will be left with hundreds of questions on which we are seeking input in this short amount of time.  I worry that we are not allowing enough time to receive the substantive kind of feedback we will need from the many types of market participants whom these rules will affect in order to adapt each of these proposals into workable rules.”

In recent remarks before the Asian Pacific American Bar Association, Uyeda was critical of recent SEC comment periods as a limitation on due process. He opened by movingly describing the impetus for his focus on due process under the Administrative Procedure Act—the historic failures of due process that had grievously injured the Asian Pacific American community, including his own family.  Specifically, he recounted that his grandparents and their families were held in internment camps during World War II, an action by the U.S. Government that was upheld as lawful under the shameful Korematsu decision. As a young lawyer, he said, he “thought that instances of inappropriate use of race and national origin by the federal government were largely in the past,” but soon learned otherwise when his law firm took on the pro bono representation of an Asian-American scientist, a U.S. citizen, who was arrested on allegations of espionage and held in solitary confinement in pretrial detention for more than nine months. As the prosecution’s case started to crumble, “allegations of targeting of Asian American employees at the lab began circulating.” When, in the end, the prosecution’s case failed, the judge was compelled to issue an “extraordinary apology.”  “These incidents,” Uyeda said, “have had a profound influence on how I think about the exercise of federal power.  While all Americans should be cognizant of these historical failures, it is particularly important for individuals that wield the authority of the federal government to do so in a manner that fully respects the due process rights enshrined in the Constitution.”

Shifting to the APA, Uyeda urged the SEC to “avoid taking any actions that diminish due process.”  The APA’s notice-and-comment process was a “key procedural requirement” that required the SEC (or other agency) to “afford[] interested persons a reasonable and meaningful opportunity to participate in the rulemaking process.” In evaluating compliance, the adequacy of the comment period is a consideration for the courts. He observed that Presidents Clinton, Obama and Biden all recognized the importance of a 60-day comment period in executive orders, and the Administrative Conference of the United States had endorsed a comment period of at least 60 days for significant regulatory actions.

In Uyeda’s view, the current SEC had frequently failed to satisfy this procedural requirement, both with respect to the duration of comment periods as well as “shortcuts with respect to reviving long-dormant rule proposals.” Many of the 30  proposals issued during the 2022 fiscal year had comment periods that were, in his view, inadequate—only 30 days after publication in the Federal Register—especially if they fell over the holidays or involved contemporaneous complex rule proposals. In addition, recently, the SEC had not followed the past practice of issuing a re-proposal through notice and comment if more than five years had elapsed since the original proposal, instead simply reopening the comment periods for the existing versions, even though they contained dated economic analyses.  An updated economic analysis was not available until the final rule release—i.e., not available for commenters. (See this PubCo post.)

The “failure to embrace robust compliance practices” under the APA was “troubling, “ he contended, and may “undermine the legitimacy of agency actions” and weaken an “important protection against regulatory overreach.” He found the SEC’s actions to be “particularly disappointing because the agency likely could have achieved the same substantive results while engaging in high-quality rulemaking practices.” Failure to respect procedural protections, he asserted, “can result in broad governmental actions that empower and enlarge an administrative state that contrasts with the limited role of government contemplated by our Nation’s founders…. The blueprint for restoring that legitimacy is straightforward: ensure that every regulatory action goes well above and beyond the bare minimum required by law.”

He concluded that the damage resulting from “unchecked government action is often based on a self-identified need for expediency, yet can take decades or more to cure.” The many decades it took for the government to apologize for the Japanese internment and the Korematsu decision attest to that fact.