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The SEC’s Unlawful and Dangerous Expansion of the Exchange Act

December 01, 2017

Michael N. Levy & Amanda L. Fretto

In a series of recent settled enforcement actions with major U.S. companies involving the hiring of interns and the reinstatement of an airline route, the Securities and Exchange Commission (SEC) progressively has expanded what it believes to be the scope of Sections 13(b)(2)(A) and (B), commonly known as the “books and records” and “internal controls” provisions, of the Securities Exchange Act of 1934 (Exchange Act). As discussed below, the plain meaning and congressional intent of these provisions addressing “internal accounting controls” and “books, records, and accounts” that fairly reflect “transactions” and the disposition of “assets” clearly establish that these recent resolutions reflect an expansion by the SEC of the Exchange Act well beyond any reasonable reading. If allowed to persist, this expansion not only is unlawful, but it also hands the SEC the capacious authority to regulate by enforcement almost any aspect of the operations of any issuer. Congress did not grant that authority to the SEC when it passed these provisions, and the SEC should not be allowed to seize that authority today.

Practice Areas

Securities Litigation

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