Sec Speeches Cryptocurrency Remarks at the APABA-DC Awards and Installation Reception

Good evening and thank you for the invitation to be here.  Before I begin, I must remind you that my remarks reflect solely my individual views as a Commissioner and do not necessarily reflect the views of the full Commission or my fellow Commissioners.

Congratulations to Yifang Zhao as she starts her service as the incoming President of the Asian Pacific American Bar Association of the Greater Washington, D.C. Area (APABA), and to outgoing president Ethel Hong Badawi for successfully leading the organization during the past year.

Congratulations also to this evening’s award recipients, including Peter Hyun and Erica Lai – with whom I served on the APABA board – as well as Rukku Singla and Erika Moritsugu.

Organizations like APABA serve an important role in promoting the growth and advancement of Asian Pacific American attorneys, judges, academics, and law students. History shows us that strong legal advocacy is necessary to protect and preserve the rights of minorities.  The due process clauses of the U.S. Constitution are important protections that limit the government when it seeks to deprive individuals of life, liberty, or property.[1] 

Historical Failures of Due Process for the Asian Pacific American Community

Failure to provide due process can result in egregious government conduct.  One example occurred in February 1942, when President Franklin Roosevelt issued Executive Order 9066,[2] which caused more than 120,000 persons – a majority of whom were U.S. citizens of Japanese ancestry – to be incarcerated in internment camps.  My grandparents and their families were among the Americans subjected to this treatment.  The indignities of internment were compounded by the decision of the Supreme Court to uphold the government’s actions in Korematsu as lawful.[3]

On becoming a lawyer, I thought that instances of inappropriate use of race and national origin by the federal government were largely in the past, but this was not the case.  As a junior corporate associate at O’Melveny & Myers LLP in the late 1990s, I was paired to conduct fall on-campus recruiting with one of the firm’s litigators, Mark Holscher.

A couple of years later, Mark and the firm would represent pro bono Dr. Wen Ho Lee, a U.S. citizen and scientist in New Mexico who was arrested in December 1999 on allegations of espionage.  At the insistence of the government, Dr. Lee remained in pretrial detention for more than nine months – held in solitary confinement for all but one hour per week.  Yet the prosecution’s case on the most significant charges started to fall apart and allegations of targeting of Asian American employees at the lab began circulating. By the conclusion of the case, Judge Parker issued the extraordinary apology that “I believe you were terribly wronged by being held in custody pretrial…under demeaning, unnecessarily punitive conditions. I am truly sorry that I was led by our Executive Branch of government to order your detention last December.”[4]

These incidents have had a profound influence on how I think about the exercise of federal power.  While all Americans should be cognizant of these historical failures, it is particularly important for individuals that wield the authority of the federal government to do so in a manner that fully respects the due process rights enshrined in the Constitution. 

The Powers Granted to the SEC

One of my most important responsibilities as a Commissioner is to vote on how the agency should exercise its authority granted by the federal securities laws.  Critically, the Commission must avoid taking any actions that diminish due process. 

For example, the Commission is authorized to issue rules that can affect a wide range of market participants.  Any party that is required to comply with a rule may be forced to incur significant costs resulting from new compliance burdens, the loss of revenue caused by the need to alter business practices, or some combination of the two.  Persons that violate a rule are subject to the enforcement authority granted to the Commission.  In recognition of the need to place safeguards on the rulemaking authority of federal agencies, Congress enacted the Administrative Procedure Act.[5]  

Notice and Comment Requirements

A key procedural requirement set forth in the Administrative Procedure Act is “notice and comment.”[6]  Under this requirement, an agency generally must publish a notice of proposed rulemaking in the Federal Register and give interested persons the opportunity to participate through the submission of comments. 

The notice requirement is deemed satisfied when an agency “affords interested persons a reasonable and meaningful opportunity to participate in the rulemaking process.”[7]  Once the notice is published, the Act does not set forth a minimum time period to satisfy an agency’s requirement to accept comments on the proposed rule.  However, in evaluating a comment period, courts look to whether the agency provided an “adequate” period to comment.[8]  Executive orders issued by Presidents Clinton, Obama, and Biden all recognized the importance of a 60-day comment period.[9]  A comment period of at least 60 days is also endorsed by the Administrative Conference of the United States for significant regulatory actions.[10]

Procedural Concerns with Current Rulemaking

During the fiscal year ended September 30, 2022, the Commission proposed approximately 30 new rules.  Quite a few of these rule proposals had comment periods that lasted a mere 30 days after publication in the Federal Register.[11]  In my view, 30 days does not provide an adequate period for the public to analyze and comment on complex Commission proposals, especially when –  for one proposal – that period started around Thanksgiving and ended around New Year’s Day.  This is particularly true given the breadth and complexity of certain proposed rules, as well as the fact that the Commission has issued multiple parallel proposals affecting the same stakeholders around the same time or in short order.  These factors raise the concern that such rule proposals do not afford interested persons a reasonable and meaningful opportunity to participate.

The quality of agency rulemaking suffers when the public is unable to meaningfully participate.  These procedural failures also can expose Commission rulemaking to challenge in the courts.[12]

In addition to issuing rule proposals with what I would view as shorter than desirable comment periods, the Commission has been taking shortcuts with respect to reviving long-dormant rule proposals.  The past practice of Commission staff has been generally to recommend the re-proposal of a rule through notice and comment if more than five years have elapsed since the original proposal.  In contrast, the Commission has instead recently decided simply to reopen the comment periods for several proposals that were past the five-year mark.[13]  In one instance, the comment period for a rule initially proposed in April 2015 was reopened in January 2022, and the Commission adopted the rule in September 2022.[14]  Among other procedural issues raised by this course of action, public comment was only solicited with respect to the 2015 proposal, which – by 2022 – contained economic analysis that was outdated.  The adopting release for the final rule adopted earlier this year contained updated economic analysis that the public, including prospective commenters, had neither seen nor been given a chance to comment on.

Due Process Concerns

Irrespective of one’s opinion regarding the substance of the Commission’s current rulemaking initiatives, the failure to embrace robust compliance practices under the Administrative Procedure Act is troubling.  The agency’s actions are particularly disappointing because the agency likely could have achieved the same substantive results while engaging in high-quality rulemaking practices. 

Without an unwavering commitment to proper due process, an important protection against regulatory overreach is weakened.  Lack of respect for, and obedience to, the procedural protections enshrined in our Constitution and our laws can result in broad governmental actions that empower and enlarge an administrative state that contrasts with the limited role of government contemplated by our Nation’s founders. 

I am concerned that the current situation does not bode well for the entities regulated by the Commission and the broader American public whose financial well-being is tied to fair, orderly, and efficient markets.  Increasingly complex and burdensome rules that are issued without full public input have the potential to increase costs without commensurate benefits. 

Since 2021, the Commission’s approach to promulgating new rules through processes that, at best, meet the bare minimum legal standards – a proposition that itself is open to question[15] – can undermine the legitimacy of agency actions.  It also severely undercuts the efforts by past agency leadership from both political parties to set the Commission’s rulemaking efforts as the “gold standard.”  The blueprint for restoring that legitimacy is straightforward: ensure that every regulatory action goes well above and beyond the bare minimum required by law.

Conclusion

Harm caused by unchecked government action is often based on a self-identified need for expediency, yet can take decades or more to cure.  The government would do better to avoid taking actions that create such harm in the first place.  An unwavering and steady commitment to due process in all parts of government is an important tool in that pursuit.

For Americans of Japanese ancestry, it would take more than forty years before the nation would apologize through the enactment of the Civil Liberties Act of 1988.[16]  Upon signing, President Reagan stated “what is most important in this bill has less to do with property than with honor.  For here we admit a wrong; here we reaffirm our commitment as a nation to equal justice under the law.”[17]

It would take another three decades before the Supreme Court apologized for its decision in Korematsu.  It was not until 2018 that, in a majority opinion, the Court wrote that it had been given “the opportunity to make express what is already obvious: Korematsu was gravely wrong the day it was decided, has been overruled in the court of history, and—to be clear—‘has no place in law under the Constitution.’”[18]

Thank you and good evening.