News Release: Fifth Circuit’s Wall Street-Friendly Ruling A Broad Threat to SEC Disclosure Rules


June 7, 2024

Carter Dougherty,

Fifth Circuit’s Wall Street-Friendly Ruling A Broad Threat to SEC Disclosure Rules

Washington, DC – By staying the private fund disclosure rule written by the Securities and Exchange Commission, the Fifth Circuit has given a victory to extraordinarily wealthy predatory financiers and opened the door to undermining the agency’s basic regulatory tools.

“The Fifth Circuit has sided with Wall Street and private equity billionaires by issuing an extreme and unfounded decision that blocks needed protections for workers saving for retirement and for the public interest,” said Andrew Park, senior policy analyst at Americans for Financial Reform Education Fund. “We expect the SEC will appeal this decision, which should be overturned as soon as possible.”

Stopping the SEC’s private funds rule, which would increase transparency and accountability in the multi-trillion-dollar private funds market, is a terrible outcome in and of itself. But the impacts of this ruling go much further. In holding that the SEC’s statutory antifraud powers don’t authorize it to require specific disclosures or reporting, the Fifth Circuit also called into question many other mandatory SEC disclosure rules, including for public markets.

“The Fifth Circuit is dragging us down a slippery slope that everyone should fear,” said Park. “The implications of this ruling would undermine the basic investor protections that are a backbone of the confidence investors have in the largest capital market in the world.”

The Fifth Circuit on Wednesday, in National Association of Private Fund Managers v. the Securities and Exchange Commission, threw out the SEC’s private fund advisers rule. The rule would require private fund advisers to provide detailed quarterly reporting to investors of all the fees and expenses they have been charged, more clearly show how returns are calculated, and impose some restrictions on special arrangements that selected investors may have.

AFR-EF submitted an amicus brief in December arguing that the SEC has clear anti-fraud authority under the Investment Advisers Act of 1940 to implement this rule. AFR-EF also raised questions – entirely ignored in the Fifth Circuit opinion – around whether the plaintiffs have proper standing to bring their case to the Fifth Circuit, which is notoriously industry-friendly.

In March, AFR-EF organized a roundtable on the case which included discussion of the importance of the private fund advisers rule and the dire implications of rolling back the SEC’s authority, which financial markets have relied on for 90 years. The recording is here.