Wall Street Braces for Uncertainty as SCOTUS Curbs Agency Power
Recent Supreme Court decisions are dismantling decades of regulatory precedent, creating a new landscape of legal risk for companies overseen by the SEC, FTC, and other federal bodies.
A quiet earthquake is reshaping the foundations of American financial regulation, introducing a level of uncertainty that corporations and investors have not faced in generations. A series of landmark Supreme Court decisions is systematically chipping away at the authority of independent federal agencies, threatening to upend the predictable, rules-based environment that has governed U.S. markets for nearly a century.
The court's conservative majority is challenging the very structure of the administrative state, with profound implications for powerful bodies like the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC). This legal overhaul is forcing Wall Street to grapple with a new era of heightened litigation risk and the potential for politically driven swings in enforcement.
The End of Business as Usual for Regulators
The most immediate blow to regulatory power came in the June 2024 decision of SEC v. Jarkesy. The court ruled that the SEC's use of in-house administrative law judges to adjudicate fraud cases seeking civil penalties was unconstitutional, affirming that defendants have a Seventh Amendment right to a jury trial in federal court. For decades, the SEC relied on these internal tribunals as a swift and efficient enforcement tool.
That mechanism is now largely defunct. The ruling is expected to significantly slow the pace of securities enforcement, increase litigation costs, and force the agency to be more selective in the cases it pursues. According to an analysis from the law firm Arnold & Porter, the decision could trigger a "tsunami of lawsuits" challenging the authority of other agencies—from the Federal Reserve to the Environmental Protection Agency—that use similar administrative proceedings.
A Broader Challenge to Agency Expertise
Compounding the Jarkesy decision is the court's overturning of the long-standing Chevron deference doctrine. For 40 years, this legal principle required courts to defer to an agency's reasonable interpretation of ambiguous laws passed by Congress. It empowered regulators to apply their technical expertise to complex and evolving sectors like finance, technology, and energy.
In its place, courts will now have the final say on statutory interpretation. While proponents argue this restores a proper balance of power, market participants fear it will lead to a patchwork of conflicting judicial rulings and regulatory paralysis. "Companies may face increased litigation costs and need to dedicate more resources to legal and compliance departments to navigate this evolving landscape," noted a report from Emerald Financial. This shift means new rules on everything from climate-risk disclosures to cryptocurrency and artificial intelligence will face a much more arduous and uncertain path.
The Bedrock of Independence at Risk
The most significant, longer-term threat looms over Humphrey's Executor v. United States, a foundational 1935 precedent that established the independence of agencies like the FTC and, by extension, the SEC. The ruling prevents a president from firing agency commissioners for purely political reasons, insulating them from direct White House control and fostering regulatory stability between administrations.
Recent oral arguments suggest the court's conservative justices are willing to revisit this principle, potentially giving the president greater authority over bodies designed to be impartial. While analysts at the Roosevelt Institute believe the court may be wary of causing "market uproar" by directly threatening the Federal Reserve's independence, the direction of travel is clear. A weakening of this precedent could lead to abrupt, politically motivated shifts in M&A reviews, consumer protection enforcement, and capital market rules with every new election cycle.
For corporations and investors, this confluence of legal challenges translates into a less predictable and more hazardous operating environment. The era of relying on stable, expert-driven regulatory oversight is giving way to a period where legal and political strategy may become as critical as financial performance.