One of the precedents we set in litigation over important transparency rules has now been used to save another important part of the Dodd-Frank Act. It’s a little technical/procedural, but bear with me because it shows how our work has side benefits even when we don’t full-on win, and even when our precedents aren’t the ones we set out to establish.
The background is this: when the SEC put out a rule requiring transparency in the extractive industries in 2012, the American Petroleum Institute (API) sued in the D.C. Circuit. ERI intervened in the lawsuit to help the SEC defend the rule.
Our major innovation was to argue that the case had been filed in the wrong court – API had taken the case directly to the appellate court, but it should have filed in the district court instead. We were the only people to make this argument – the API obviously thought it had filed in the right place, and the SEC didn’t oppose their choice. In the end, we got a very conservative panel that likely would have thrown out the transparency rule, but they agreed with us that API had filed in the wrong court. The ruling basically quoted our arguments verbatim – it said that only certain very specific SEC rules can go directly to the appellate court without passing through the district court first, and our rule wasn’t one of them. As a result, our case was kicked back down to the District Court, where Judge Bates eventually ruled against the SEC and threw out the rules on narrow procedural grounds.
Now, fast forward to last week. Another very conservative panel of the D.C. Circuit puts out a decision kicking another rule challenge down to the district court, completely relying on the precedent we set in API v. SEC. This time the rule was a response to the financial crisis – it basically says that those who package and issue asset-backed securities (who helped trigger the financial crisis by creating exotic and sketchy financial instruments that no one understood and then passing them on to others for a profit without taking on any risk to themselves) must retain some percentage of the credit risk of the securities when they sell those securities to others.
A group of securitizers sued the government, claiming that they shouldn’t be covered by this rule. And thanks to the precedent we set, that rule (which likely would have been thrown out by the D.C. Circuit, given the composition of the panel of judges) lives to fight another day. They may get a much more favorable hearing in the district court, and the process will now take longer, which means that the securitizers may have to start complying with the rule in the interim. So the precedent we set contributes to the stability of the U.S. financial system and helps rein in the practices of some really shady operators.
