A federal appeals court has ruled that Wall Street's top regulator must rectify "defects" in a new regulation on share buybacks announced earlier this year, marking a partial victory for strong trade organizations fighting the measure. A representative for the Securities and Exchange Commission said Wednesday that the agency was examining the decision. The SEC ordered public …
A federal appeals court has ruled that Wall Street’s top regulator must rectify “defects” in a new regulation on share buybacks announced earlier this year, marking a partial victory for strong trade organizations fighting the measure.
A representative for the Securities and Exchange Commission said Wednesday that the agency was examining the decision.
The SEC ordered public corporations to report share buyback data under a rule approved in May, claiming that this would assist investors analyze the rationales behind them.
Critics argue that share buybacks, which totaled about $950 billion in the United States last year, typically serve to enhance a firm’s share price or pad CEO compensation rather than allowing for additional investment in corporate operations.
However, the United States Court of Appeals for the Fifth Circuit sided with some business groups, including the United States Chamber of Commerce, on Tuesday. They had sued, arguing that the SEC had ignored proposals made during a notice-and-comment process on how to measure the regulation’s economic consequences, and that it had also failed to back up its claims that the rule would benefit investors.
“The SEC acted arbitrarily and capriciously when… it failed to respond to petitioners’ comments and failed to conduct a proper cost-benefit analysis,” a three-judge panel said.
The decision gave the agency 30 days “to correct the defects in the rule.”
The US Chamber of Commerce praised the verdict on Wednesday as a “victory,” adding that the court’s findings pointed to “deeper problems” in the SEC regulatory process.
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