Dissenting opinions by SEC commissioners have been issued at a high rate lately, and a particularly barbed dissent came late last month from Commissioner Dan Gallagher. On August 27, 2014, the SEC adopted a new rule prohibiting rating agencies ("nationally recognized statistical rating organizations" or “NRSROs”) from issuing or maintaining a credit rating 

where a person within the nationally recognized statistical rating organization who participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating, including qualitative and quantitative models, also ... is influenced by sales or marketing considerations. (emphasis added)

The "influenced by sales or marketing considerations" language did not fly whatsoever with Commissioner Gallagher, who issued a dissenting opinion the same day. Commissioner Gallagher wrote that the SEC had, through the new Rule, established what he called a "thoughtcrime:"

Let’s be very clear about what the Commission is doing today.  This is not analogous to our rules that require scienter to establish a violation of the federal securities laws.  This new prohibition is solely based on state of mind – there is no requirement that any action be taken.  Even if the rating process is effectuated without any abuse, we could theoretically still pursue the analyst unfortunate enough to display evidence that a stray thought related to sales and marketing considerations crossed his or her mind.  Remember, the rating process, much less the rating itself, does not have to be influenced by such considerations to violate this new rule. 

Commissioner Gallagher added that if such a rule was applied to, say, insider trading, the SEC would soon find itself "clamping down on traders who, like rating analysts deemed by the Commission to be 'under the influence,' are deemed to have ill intent, regardless of their actions or the outcomes thereof." Commissioner said he could not "imagine any court in the land not striking down this vague and unverifiable 'influence' clause." (via WSJ)

 

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