Justices Scalia And Thomas Amenable To Reexamining Deference To SEC Statutory Interpretations

Like Prince Charming searching for the foot that fit the glass slipper, Justice Scalia recently issued a statement advising that he and Justice Thomas would be receptive to granting certiorari to a petition properly presenting the issue of whether, in a criminal context, a court should grant deference to an administrative agency's statutory interpretation. And, like the townspeople who lined up to offer their own feet for consideration, lawyers across the country undoubtedly will offer the Court a variety of cases from which to choose.

On November 10, 2014, the Supreme Court issued an order denying certiorari in a matter where the Second Circuit had affirmed a criminal conviction under the securities laws. Whitman v. United States, 574 U.S. ___ (November 10, 2014). The order also included a brief statement by Justice Scalia, joined by Justice Thomas, reflecting the two Justices' interest in considering the issue of agency deference in an appropriate future case.

The indictment in United States v. Whitman, 904 F. Supp. 2d 363, 365 (S.D.N.Y. 2012), charged the defendant with insider trading and conspiracy to commit insider trading, alleging that the defendant traded or agreed to trade on material non-public information he received from tippees who had, in turn, obtained the information from inside employees at several public companies. The district court charged the jury in accordance with established Second Circuit precedent, under which defendants violate the law when they trade while in "knowing possession" of material non-public information. On appeal the defendant urged the Second Circuit to adopt the Ninth Circuit's standard instead, which provides that a defendant is liable only if the inside information was a "significant factor" in the investment decision. United States v. Whitman, 555 Fed. Appx. 98, 107 (2d Cir. 2014). The Second Circuit, however, acknowledged that it was bound by the Circuit's controlling precedent and that the defendant's proposed change could be adopted only by the Court sitting en banc. The controlling precedent on which the panel relied, United States v. Royer, 549 F.2d 886 (2d Cir. 2008), had adopted the "knowing possession" standard, partially relying on SEC Rule 10b5-1 which also applied the knowing possession standard. The Royer court had held that the SEC's interpretation of the securities statutes, as reflected in Rule 10b5-1, was entitled to deference under the Supreme Court's decision in Chevron U.S.A...