Opinion ID: 786487
Heading Depth: 2
Heading Rank: 2

Heading: the relationship between sipc and the sec

Text: 26 By the explicit language of SIPA, SIPC is not an agency or establishment of the United States Government. 15 U.S.C. § 78ccc(a)(1)(A). SIPC asserts that although it is not an agency  per se,  it is, under SIPA, an independent corporation endowed with its own voice and responsibilities in the conduct of liquidations and payment of net equity claims from the SIPC Fund. Letter from Harbeck, General Counsel, SIPC, to the Court of 7/3/03 (Harbeck Letter), at 1. According to SIPC, the SEC possesses potential supervisory authority in some but not all areas of SIPC's operations. Id. (citing 15 U.S.C. § 78ggg(c)). Although we agree with SIPC that the drafters of SIPA clearly envisioned roles for both the SEC and SIPC in administering the statute, 11 see 3 THOMAS LEE HAZEN, LAW SECURITIES REGULATION § 14.24 (2002), we find that Congress deliberately limited the authority of SIPC relative to the SEC. 27 The Supreme Court held in Securities Investor Protection Corporation v. Barbour, 421 U.S. 412, 95 S.Ct. 1733, 44 L.Ed.2d 263 (1975), that SIPA invests the SEC with `plenary authority' to supervise the SIPC. Id. at 417, 95 S.Ct. 1733. Indeed, SIPA drafters seem to have anticipated substantial and vigorous oversight of SIPC by the SEC. H.R. REP. No. 91-1613, at 11-12 (1970), reprinted in 1970 U.S.C.C.A.N. 5254, 5265 (explaining that SIPA provides for substantial oversight on the part of the Commission over the conduct of the affairs of SIPC); id. at 5266 (noting that the House Committee on Interstate and Foreign Commerce not only directs, but expects the Commission to use its oversight in a vigorous, but fair, manner); see also Sec. Investor Prot. Corp. v. Charisma Sec. Corp., 506 F.2d 1191, 1196 & n. 7 (2d Cir.1974) (In fact, it is contemplated that the SEC will exercise a supervisory role over SIPC performance.). 28 For example, although SIPA provides SIPC with the power to adopt, amend or repeal bylaws and rules as necessary or appropriate to further the purposes of SIPA, 15 U.S.C. § 78ccc(b)(3), (4), the SEC may disapprove any such bylaw in whole or in part, and any proposed rule or rule change must be filed with and approved by the SEC before it takes effect, id. § 78ccc(e)(1)(A), (2). Indeed, the Series 500 Rules, 17 C.F.R. §§ 300.500-.503, which the District Court held govern this case, 12 see Goren, 206 F.Supp.2d at 350-51, were proposed by SIPC and approved by the SEC in just that manner, see 17 C.F.R. § 300.100 (explanatory note). SIPA also empowers the SEC to take an even more proactive rule-making role: The [SEC] may, by such rules as it determines to be necessary or appropriate in the public interest or to carry out the purposes of this chapter, require SIPC to adopt, amend or repeal any SIPC bylaw or rule, whenever adopted. 15 U.S.C. § 78ccc(e)(3) (emphasis added). 29 In addition, the SEC may, on its own motion, file an appearance in any SIPC-initiated proceeding and may thereafter participate as a party. Id. § 78eee(c). Even more significantly, [i]n the event of the refusal of SIPC to commit its funds or otherwise to act for the protection of customers of any member of SIPC, SIPA authorizes the SEC to seek a court order requiring SIPC to discharge its obligations under [SIPA] and for such other relief as the court may deem appropriate to carry out the purposes of [SIPA]. Id. § 78ggg(b); see also Barbour, 421 U.S. at 417-18, 95 S.Ct. 1733; 3 HAZEN, supra, § 14.24. 30
31 Shortly after SIPC was formed, this Court considered, in an entirely different context, the degree of deference that should be accorded to SIPC's interpretation of a different provision of SIPA. Noting its familiarity with SIPA liquidations, SIPC argued that it should be given deference on a par with that given to an SEC interpretation. Sec. Investor Prot. Corp. v. Charisma Sec. Corp., 506 F.2d 1191, 1196 (2d Cir.1974). The Charisma Securities court noted that while SIPC's expertise should be accorded weight by a district judge, the court was hesita[nt] to draw the analogy between the Corporation and the SEC, because the SIPC is not an independent regulatory agency, ... nor has it yet had the opportunity to establish a long history of knowledgeable and conscientious performance as has the SEC. 13 Id.; see also In re Lloyd Sec., 163 B.R. 242, 253 (Bankr.E.D.Pa.1994) (stating that because SIPC is not a governmental agency, ... it cannot take advantage of the implicit deference which must be accorded to federal agencies' interpretations of their own pertinent statutory schemes and operative administrative regulations), aff'd in part, rev'd in part on other grounds, 183 B.R. 386 (E.D.Pa.1995), aff'd, 75 F.3d 853 (3d Cir.1996). 32 Although SIPC now has the history of knowledgeable and conscientious performance under SIPA that it lacked when Charisma Securities was decided, its status vis-à-vis the SEC — and as a non-agency — has not changed. SIPC argues that other government-created corporations have been accorded Chevron -style deference, see Harbeck Letter at 6 (citing Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990); Velazquez v. Legal Servs. Corp., 164 F.3d 757 (2d Cir.1999), aff'd, 531 U.S. 533, 121 S.Ct. 1043, 149 L.Ed.2d 63 (2001)), but we find that the entities at issue in those cases are dissimilar to SIPC in critical respects. The Pension Benefit Guaranty Corporation (PBGC) was established as an entity within the Department of Labor, with the power to adopt, amend, and repeal necessary bylaws, rules, and regulations. 29 U.S.C. § 1302(a), (b)(3). As such, we have characterized PBGC as a federal agency. Jones & Laughlin Hourly Pension Plan v. LTV Corp., 824 F.2d 197, 201 (2d Cir.1987); see also LTV Corp., 496 U.S. at 647, 110 S.Ct. 2668 (repeatedly characterizing PBGC as an agency). SIPC, on the other hand, does not have similar authority. 33 With respect to the Legal Services Corporation (LSC), the other government-created corporation cited by SIPC, the SEC notes that although LSC is not a government agency, it is unlike SIPC because its enabling statute gives it final authority to promulgate rules. Letter from Prezioso, General Counsel, SEC, to the Court of 7/21/03 (Prezioso Letter), at 8. We agree. See Texas Rural Legal Aid, Inc. v. Legal Servs. Corp., 940 F.2d 685, 689-90 (D.C.Cir.1991) (according Chevron deference to LSC interpretation because, although LSC is not an agency, Congress has entrusted LSC with the duty to administer the [Legal Services Corporation] Act and ... has delegated to LSC the authority to fill any gap left ... by Congress through notice-and-comment rulemaking..., indicating that Congress intended that it be treated for these purposes like an agency of the government) (citations and internal quotation marks omitted). 34 This case is also distinguishable from LTV Corp. and Velazquez because the SEC — the agency with `plenary authority' to supervise the SIPC, Barbour, 421 U.S. at 417, 95 S.Ct. 1733 — has proffered a competing view of the meaning of the statute. The Trustee and SIPC suggest, however, that the SEC's oversight and rule-making authority has somehow atrophied because, in the over thirty years since SIPA's creation, it has never been exercised meaningfully. Harbeck Letter at 2. While the SEC's historically laissez-faire approach to its SIPA responsibilities is relevant to our deference analysis, see infra at 80-83, we do not believe it has effected the shift in the balance of power between the two organizations that SIPC and the Trustee seem to envision. 14 35 In Chao v. Russell P. Le Frois Builder, Inc., 291 F.3d 219 (2d Cir.2002), we addressed a similar problem where two administrative agents — the Secretary of Labor and the Occupational Safety and Health Review Commission — offered competing views of the statute at issue. Id. at 226. We held that the very first step of that deference analysis required a choice between the two agencies: For purposes of [the deference] analysis, then, we must first decide to which administrative actor — the Secretary or the Commission — Congress `delegated authority ... to make rules carrying the force of law.' Only then can we decide the nature or extent of that deference. Id. (quoting United States v. Mead Corp., 533 U.S. 218, 226-27, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (citation omitted)). While SIPC clearly plays an essential administrative role, Congress deliberately chose not to grant SIPC agency authority, see 15 U.S.C. § 78ccc(a)(1)(A), and instead invested plenary authority over SIPA with the SEC, Barbour, 421 U.S. at 417, 95 S.Ct. 1733. Thus, while SIPC's proposed construction of the statute is a relevant part of our analysis — and will certainly inform the level of deference we accord to the SEC's reading of the statute — it is not an interpretation to which we must necessarily defer. 15 We confine our holding to the unique facts of this case where the SEC has offered a competing and more persuasive interpretation of the statute. We do not consider what measure of deference an SIPC interpretation might warrant under other circumstances, e.g., when it alone speaks to the meaning of one of its rules. Our decision in Charisma Securities left that general question open and we do so here as well. 36 Ultimately, we agree with the SEC that [w]hatever SIPC's expertise in overseeing SIPA liquidations, Congress did not intend for the Commission's interpretations of SIPA to be overruled by deference to the entity that was made subject to the Commission's oversight. Prezioso Letter at 8. The SEC has also highlighted that, under the statutory scheme, if SIPC filed a proposed rule that set forth its current interpretation of section 9(a)(1) of SIPA, 15 U.S.C. § 78fff-3(a)(1), the Commission would, after considering whether the proposed rule was consistent with SIPA and in the public interest, have authority to deny approval of such a rule. Id. Even more compelling, the SEC argues that it could require SIPC to adopt a rule that sets forth what the SEC believes is the appropriate interpretation of section 9(a)(1). Id. We agree that deference to SIPC, under the circumstances presented here, would impermissibly undermine that statutory hierarchy. Whether the SEC interpretation of section 9(a)(1) deserves deference from this Court is a separate question to which we now turn. 37