The SEC Is Not an Independent Agency

During his 2008 presidential campaign, Senator John McCain boldly claimed: "The chairman of the [Securities and Exchange Commission] serves at the appointment of the president. ... If I were president today, I would fire him." (1) The statement soon became an embarrassment after commentators pointed out that the President cannot "fire" a commissioner the Securities and Exchange Commission (SEC or Commission) at will, (2) based on the understanding long held by legislators, courts, academics, and other authorities that the SEC an independent agency. (3) In the face of this criticism, the McCain campaign quickly backed away from the statement. (4)

But two years later, the Supreme Court faced the same question and four Justices were so easily persuaded. Dissenting in Free Enterprise Fund v. Public Company Accounting Oversight Board, (5) Justice Breyer wrote: "It is certainly not obvious that the SEC Commissioners enjoy [removal] protection." (6) He explained that "the statute that established the Commission ... is silent on the question," (7) and that, in light of the statute's history, Congress not have intended to make the SEC independent. (8) Despite Justice Breyer's concerns, majority opinion sidestepped this question, allowing the parties to stipulate that SEC commissioners had removal protection and "decid[ing] the case with that understanding." (9) Thus, the Court did not squarely decide whether SEC commissioners are removable by the President at will, or only for cause. (10)

This Note argues that if the President were to remove an SEC commissioner without cause, a reviewing court would uphold the removal. Part I describes the unique historical period in which the SEC was created: during the nine years between the landmark decisions in Myers v. United States (11) and Humphrey's Executor v. United States, (12) when it was assumed that all executive appointees were terminable at will. Part II considers the text of the statute that created the SEC. To interpret the statute's silence, it turns to a long-standing rule of construction providing that the President has the power to remove officers he or she appoints unless Congress explicitly provides otherwise. Part II also considers the legislative and executive understandings of the statute when it was enacted. Finally, Part III canvasses alternative approaches to interpreting the statute. In particular, it considers rules based on the agency's structural features, on the totality of the circumstances, on the postenactment history of the statute, and on the history and tradition surrounding the agency. Because these approaches produce ambiguous results, rest on questionable legal grounds, and risk undermining important balances struck by the enacting legislature, Part III concludes that they are not suitable techniques for determining the SEC's independence. (13) Therefore, this Note concludes that the SEC is not an independent agency, and closes with a brief look at this argument's potentially significant implications for the SEC and for other agencies similarly lacking explicit statutory for-cause removal protection.

1. HISTORICAL CONTEXT

Before examining the SEC's enabling statute, it is important to understand the context in which the SEC was created. First, this Part sketches the Supreme Court's landmark decisions in Myers, which appeared to hold that Congress could not limit the President's removal power, (14) and Humphrey's Executor, which held that Congress could limit the President's power to remove all but "purely executive" officers. (15) This Part then turns to the creation of the SEC, which occurred between these two decisions, and therefore during a time when most observers believed that Congress could not constitutionally prevent the President from removing an appointee.

A. From Myers to Humphrey's Executor

Although lawmakers have debated the constitutionality of limiting the President's removal power since the First Congress, (16) the Supreme Court did not squarely rule on the issue until Myers, in 1926. In Myers, the Court struck down a statute that prevented the President from removing a postmaster of the first class without "the advice and consent of the Senate." (17) The Court held that the Constitution required the President to have "unrestricted power ... to remove his appointees" as part of the "general grant to him of the executive power" and "his own constitutional duty of seeing that the laws be faithfully executed." (18) The Court was not shy in declaring the breadth of this power, holding that it would extend even to "members of executive tribunals" or other officials exercising "quasi-judicial" power. (19) Myers thus gave the President exclusive power, rooted in the Constitution, to remove appointees.

This holding did not stand for long. In 1933, President Franklin Roosevelt removed a Hoover-appointed Federal Trade Commission (FTC) commissioner, William Humphrey, essentially without cause. (20) Although the statute stated that the President could remove FTC commissioners for "inefficiency, neglect of duty, or malfeasance in office," (21) Roosevelt declined to give any of these reasons, relying on Myers for the idea that Congress could not limit his power to remove commissioners at will. (22) When Humphrey's challenge reached the Supreme Court, the Attorney General offered it to incoming Solicitor General Stanley Reed as his very first case, considering it a "certain victory" for the government. (23)

The Court had other ideas. In a unanimous decision, it held that Congress could limit the grounds on which the President may fire commissioners. (24) The Court drastically reduced the scope of Myers, holding it applicable only to "purely executive officers," (25) such as postmasters. Finding that the FTC "acts in part quasi-legislatively and in part quasi-judicially" and that commissioners "exercise[] no part of the executive power," (26) the Court upheld the removal protection. (27) While the reasoning of this decision has been widely criticized, (28) it nonetheless laid the foundation for the development of independent agencies and the modern administrative state. (29)

B. The Creation of the SEC

The Securities Exchange Act of 1934 (30) (1934 Act) established the SEC. (31) Originally, the Roosevelt Administration wanted the FTC to enforce the securities laws, (32) and commentators disagree about exactly why a separate commission was created. Some suggest that the SEC was created to appease Wall Street lobbyists, who disliked the FTC and felt that a new, securities-specific agency would be easier to capture. (33) Others believe that the SEC was created to ensure that the laws would be enforced more vigorously and effectively than they would be under the heavily burdened FTC. (34) Both of these explanations are probably right: the SEC was likely a compromise that appealed to different factions for different reasons. (35)

Ultimately, the 1934 Act gave the SEC five commissioners, who serve staggered fiveyear terms. (36) The statute gave the President power to appoint commissioners "by and with the advice and consent of the Senate," and provided that no more than three commissioners could come from the same political party. (37) Critically, however, the statute said nothing about the removal of commissioners. (38)

As the statute was enacted almost exactly one year before Humphrey's Executor, (39) it is perhaps unsurprising that it had nothing to say about removal. At the time, the Myers holding would have controlled, seemingly making it unconstitutional to limit the President's power to remove an appointee. (40) After Humphrey's Executor, however, the 1934 Act's silence on this issue was forgotten. As early as 1940, commentators had already put the SEC in the same category as other agencies with removal protection, without considering the 1934 Act's silence. (41) These post hoc interpretations, not explicitly grounded in the text of the statute or in any obvious principles of law, should not control the analysis today. The rest of this Note aims to demonstrate that a proper interpretation of the 1934 Act leads to the conclusion that the President can remove an SEC commissioner at will.

II. INTERPRETING THE STATUTE

In light of the Court's removal jurisprudence, it is almost beyond dispute that Congress has the power to make SEC commissioners removable either at will or only for cause. (42) Thus, the question is whether Congress has done either--a question of statutory interpretation. (43) This Part examines the text of the statute using traditional tools of statutory interpretation, beginning with the statutory text, then turning to relevant canons of construction, and finally considering the legislative history. tended to confer some form of statutory protection on government officials. ").

A. The Statutory Text

As noted above, the statute is simply silent on the removal issue. (44) The statute does specify that "[e]ach commissioner shall hold office for a term of five years,"(45)but such fixed-term provisions generally do not confer a right to serve for the entire duration of the term; instead, they create only an upper limit on the number of years an officer may serve. (46) Thus, the plain text does not clearly answer the question, at least not without reference to some rule of statutory construction.

B. The Presumption of At-Will Removal

Canons of construction can serve several useful purposes in statutory interpretation. (47) First, canons reflect the rules against which Congress legislates; by examining the contemporary canons in effect when a statute was enacted, a court can better understand how the legislature would have expected its language to be interpreted. Second, canons represent commonsense ideas about how people use and understand language. Third, canons often represent "default rules" about how best to decide cases …

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Publication information: Article title: The SEC Is Not an Independent Agency. Contributors: Not available. Journal title: Harvard Law Review. Volume: 126. Issue: 3 Publication date: January 2013. Page number: 781+. © 2007 Harvard Law Review Association. COPYRIGHT 2013 Gale Group.

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