The concept of the wholly independent agency was always an optimistic one. However, so long as we have these independent agencies, we should encourage them to live up to the ideal of their neutrality.
The SEC was founded in 1932 in response to the Great Depression, still the greatest economic crisis that the United States has ever known. As high as a quarter of the country was unemployed, and publicly traded securities had lost an aggregate 83% of their value over the course of the initial years of the Depression. Motivated by President Franklin D. Roosevelt’s decisive victory in 1932, eminent lawmakers led by Representative Sam Rayburn and Senator Duncan Fletcher worked to create a systematic method to regulate financial markets with the large-scale goal of preventing economic collapses like the one in 1929.
Their solution was the Securities and Exchange Commission (SEC), a federal body independent of both market capriciousness and direct control of any single political branch. This body would work to ensure that covert corporate practices could not again result in the kinds of economic conditions that caused the Depression. However, this mission was politically motivated by the New Deal coalition to democratize the boardroom and exert wide-ranging regulatory control. Even at inception, the SEC was plagued by the specter of politicization, which has only become more apparent in its 90-odd years.
Despite the SEC’s presumptive neutrality in statute, its commissioners’ body is made up of five political appointees who are nominated by the President. Presidents have political motives, and these motives have historically trickled down into the SEC’s enforcement actions.
Professor Reilly S. Steel of Columbia Law School found that if a company shifted its partisan alignment to that of the SEC’s board following a change in control of the White House, such a move would reduce the chance of an enforcement action by approximately 19%. Further, such a realignment would also reduce the number of actions being levied toward a pliant company by between 22.4-33.5%; this realignment also lessens the monetary sanctions issued to companies in regulatory breach by about 3%.
Political bias at the SEC manifests itself in myriad ways. Sometimes bias is explicit, as in 2023 when the SEC intervened on behalf of Nasdaq’s attempt to require boards of member companies to meet specific diversity metrics, upheld by an exceedingly broad reading of the Exchange Act’s “related to” provision. Following a lawsuit filed by the National Center for Public Policy Research (NCPPR) and Alliance for Fair Board Recruitment, the SEC’s reading was overruled in the Fifth Circuit, which found in part that the reading violated the Administrative Procedure Act’s bar against “arbitrary and capricious” agency decisions. NCPPR has also previously filed suit against the SEC for engaging in viewpoint discrimination in its issuance of no-action letters, but this case was dismissed for lack of subject-matter jurisdiction as these letters could not be considered final agency action subject to review.
Further, bias may just as easily reveal itself in SEC inaction. For example, in February 2025, the SEC noted that it was discontinuing its ongoing enforcement action against the cryptocurrency platform Coinbase and ended several investigations into companies involved in the crypto market. While such a move is conducive to the President’s political promises to deregulate cryptocurrencies, the SEC aligning itself with the newly reelected President could lead one to the reasonable assumption that discontinuing the enforcement action constituted bias in favor of these companies.
Since political bias is an evincible problem at the SEC and other independent agencies, what can be done about it? The answer may not be as simple as passing a law or regulation that forbids the SEC from getting involved if there are political issues entangled with a potential enforcement action. For one, the decision to get involved in an enforcement action can carry with it political implications, as action or inaction can influence market practitioners’ risk assessment and long-term planning. Further, the mere presence of the political alone should not be a deterrent for a body responsible for regulation enforcement to act, especially in the case of actual illegality. Additionally, the controlling language of a law or regulation pertaining to neutrality will likely contain within it the biases of the political majority responsible for its creation, leveraging alleged “neutrality” in its own partisan interest.
While our system typically leaves final determinations of legality to the courts (subject to Congressional override), the judiciary’s increased role in regulating independent agencies has resulted in a considerable number of enforcement-based cases being litigated in federal court for years at a time.
Before the Supreme Court can clarify a universal standard, circuit courts with a larger docket naturally adopt independent standards to review enforcement action, inconsistent with other circuits. These circuit splits may take longer than is optimal to resolve, especially for the sake of regulatory consistency and the needs of a fast-moving business environment.
Alternatively, Congress could exercise its authority to investigate the rationale of potentially biased decisionmakers at the SEC and other independent agencies by calling them to testify before committee, and impeaching commissioners who act with bias. However, removal based on an impeachment vote almost never happens, no matter the context. Also, the long-term impact of congressional testimony on the exercise of bias is unlikely to result in any real change.
So, the unfortunate answer appears to be that the SEC needs to temper itself by attempting to be neutral in as many instances as possible, an objective well served by assuring a reviewing party that the agency is operating without political motivations. This can be implemented through the creation of a guidance document published by the SEC which lays out multiple factors by which a third party can determine if agency decisions were motivated by political animus, or if the agency action was merely an enforcement with politically neutral merit that coincidentally accords with the White House’s preferred policy. For example, factors may include whether there is neutral merit to the enforcement action, whether the enforcement action is in accordance with previous agency policy, if there is evidence of improper ex parte contact between agency and external authority, and if agency statements coinciding with the action explain deviations from previous action.
While such a guidance document would not be controlling authority, it would provide a standing reference for interested third parties to judge the SEC’s actions, increasing accountability for the agency in a time when the administrative state is in dire need of operational legitimacy. Further, unexplained changes to political neutrality guidance would draw suspicion from critics, and the agency would incur soft institutional costs if these changes were implemented to avoid scrutiny. Alternatively, as guidance documents are easily editable, if there are biased inconsistencies, they can be edited in good faith to be more neutral by subsequent administrators.
The concept of the wholly independent agency was always an optimistic one. However, so long as we have these independent agencies, we should encourage them to live up to the ideal of their neutrality by providing a common metric by which we can judge their actions. Unfortunately, such a shift will require that a President or independent agency board majority voluntarily relinquish some of their autonomy for the public good. If history is any indicator, few in positions of power take such an approach, even when withdrawal is in the best long-term interests of the institutions these officers safeguard. It is the role of critics, however, to encourage administrators to both listen to the angels of their better natures and live up to the standards that the creators of the SEC and agencies like it envisioned when these bodies were created. A fair metric by which to critique their actions is an important first step.
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