Why the Supreme Court Just Gutted a 90 Year Old Rule: DEX in the City

Transcript

So, this is actually one of the biggest Supreme Court decisions this term and maybe like in a long time. Um, and I haven't really seen that many crypto people talking about it, but I think it could have a really big impact on how the industry is regulated, which I'll get to in a minute. Um, but the court just overturned a 91-year-old case, right? So, this does not happen every day. It just overturned a case that's almost a century old called Humphrey's Executive. And that case said that the president can't fire a commissioner of an independent federal agency at will.

Um so the plaintiff in this case was an FTC commissioner, federal uh trade commission. Um commissioner, her name is Rebecca Slaughter. She's actually a friend of mine and a law school classmate. So hi Becca if you're if you're listening. Um so she along with a fellow Democratic commissioner who also went to law school with me actually. um were removed by the president last year without cause. Um so first of all just to give a little bit of context um we have a you know obviously as everyone knows we have a lot of federal agencies in the US uh but they're not all the same right so some like the DOJ and Treasury answer directly to the president um and he he or she can generally remove them at will the

leaders of these agencies but then you have agencies like the SEC the CFTC the FTC and the FCC these are called independent agencies because Congress designed them to be somewhat insulated from politics, right? So, they're run uh by bipartisan commissions that who have staggered terms. And for like the past century, those commissioners generally could only be removed for cause. And what that means is uh the president could only remove them for things like being ine inefficient or neglecting their duty or committing fraud or or other kinds of malf. He did bad stuff and sorry to interrupt mention like FCC, Federal Communications

Commission, FTC, Federal Trade Commission, just to give the listeners an example of these commissions that Yeah. >> the right so these agencies that are supposed to be quote unquote independent, right? So um what that meant is the president could not remove them without cause. He couldn't just remove them because he disagreed with their policy or political views. And this all goes back to a 1935 case called Humphre's Exeutor. Um, and what happened in that case was that President Franklin Roosevelt fired an FTC commissioner, William Humphrey, over policy disagreements, and the Supreme Court said that he couldn't do that. So, the facts of this case are basically

identical. Um, the president removed the two Democratic FTC commissioners on the commission. One of them, Rebecca, challenged the removals relying on this 90-year-old case. So, the Supreme Court just said, um, we're going to overturn, we're throwing that case out. We're overturning that precedent. And they held that because FTC commissioners exercise a form of executive power, the president generally must have the authority to remove them. So, that was the holding of this case. Um, and the reason this matters, including for crypto, is it's because it's about who controls the administrative state, right? So, the Supreme Court has now said that Congress's ability to create

agencies that are insulated from presidential politics is limited by the Constitution. So, I do think it's worth noting um that independent never really meant completely independent anyway, right? So, Presidents nominate commissioners, the Senate confirms them. Um, the president selects the chair of the agency and Congress controls the agency's budgets. They can, you know, call them in for hearings and conduct oversight and all of that. So, that's always been the case. Um, what this case changes is that commissioners are no longer protected from removal. So, I mentioned like this could have a really big impact on crypto and people just

aren't talking about it enough, right? So this doesn't change like the securities laws or the commodities laws or anything like that, but it could potentially affect how policy gets made, right? So the president now has greater leverage over commissioners who are already serving. So if you have a commissioner who, you know, the president thinks is blocking the administration's agenda, the president now has uh significantly more ability to replace that commissioner with someone who is more aligned with his administration's priorities. So what that means is agency policy, right? So everything from rulemaking and enforcement priorities to granting exemptive relief that can all become much more closely aligned with the White

House and these things could potentially change a lot more quickly from one administration to the next. So I think what you'll see happen is that presidential elections will now have like a much more immediate effect on crypto regulation and just like regulation in general, right? So instead of waiting years for agency leadership to gradually turn over when commissioner's terms expired, a new administration could come in, replace, you know, all the commissioners presumably and start like reshaping uh regulatory policy from like very early on. Um so I think like that that could potentially have like a really big impact on on policy. Um and I don't I

don't know like if you guys want to weigh in on the fact that the timing here is really interesting, right? because as many of us know, there have been empty commissioner seats on both the SEC and the CFTC for a while now. Um, and I don't know that any of those are getting replaced anytime soon, which has just been like I think another way in which the president can potentially influence how agencies like carry out policy. I don't know. What do you guys think? Thank you for doing that in such a reasoned way because this case really makes my blood boil and I have been like sort of stewing over here about it. Um, but I think you sort of laid it out

really well and there are a lot of really good deep dives on the legal side of it and how it relates to another case that came out I think the same day about you not being able to do this with the Fed, which let's not get into this time but maybe for a future episode. But to me, the thing that really grinds my gears or scares me about this whole thing uh for crypto, for tech, for really just like democracy is that the removal power what you described and mentioned it to me is a question of like who are you afraid of? A commissioner who has a fixed term is going to be afraid of the law and the record and doing the right thing, whatever that

means per their mandate. But a commissioner can be fired tomorrow by one person that is making this decision no matter what political because they said something bad about them because they don't agree with every single policy whatever fears the president right and that means that everything sort of flows back to the one person in charge. And to me, that's like the opposite of what the point of our constitution is and the opposite of why we have these agencies with specialists in securities law or energy law or whatever. And the push back is bipartisan here. There was a really

interesting article or letter by former FK chairs that, you know, that's like they deal with nuclear energy. They they deal with sort of our entire energy system, which you can imagine how important that is, especially right now. And they are saying like this is one bad, two unconstitutional, but three, and this goes to your like empty seat narrative, no one's going to want to take these roles because you just have to be a lap dog to whoever is in power. And I just don't think that is the purpose of these agencies because otherwise what are we doing? And like all crypto, all tech, all innovators, all entrepreneurs, all they want. Maybe

there's some other things they want, but a big thing about what they want is like certainty and clarity. Why do you think the bill is named clarity? the opposite effect is going to happen here where it's never certain and things are going to change at a whim depending on how the president is feeling that day. >> It's it's really interesting to give some more background here. So there's terms like there are two terms. One is textualist and textualism means that it's the judicial like the judge a judge's philosophy that the constitution should be interpreted very strictly by the plain meaning of its actual words without speculating on the framer's intentions. And then a a very related

term is originalist who believes that the constitution should be interpreted based on what the text originally meant to the people who ratified it. and all the Republicanapp appointed members of this Supreme Court identify >> as tech as textualists or originalists. So, you know, when I was hearing this overview, like I I assume that, you know, if I hadn't done a deep dive in in preparation to this pod, my question would have been like, well, why did the court do this? And the court I mean there were there are a number of arguments that we're not going to go into but I would say at the high level is that the court concluded that Humphrey's executive which was overturned was was wrong from the beginning. Meaning the majority began with the text in the constitution that

says the executive power shall be vested in a president and then they said well wait if Congress is giving an officer the president executive authority the president must be able to supervise and remove that officer. So I'm not opining on whether this is wrong or not like from a judicial reasoning perspective like I'm I'm going to respect the right of the Supreme Court to do this but I wanted to provide that reasoning. I will also say that it there is a big exception. Um there are a couple of agencies as V mentioned that were never truly independent. But what is also nice is they simultaneously held in Trump

vook that the Fed board is constitutionally protected. So they they're they're still and the Fed is still independent to some degree. So so that's hey that's something that's something you guys but like it is crazy to think that you know it's not just the CFTC and the SEC that this is going to affect. like this is going to affect I mean I I just while we were talking googled like what agencies were considered like give me a list that were considered independent before slaughter. It is a long and powerful list.

>> Um it just like makes you realize how many agencies we have and how like how vast the administrative state is. some of kind of, you know, important too and like meaning I I I would have liked or I I appreciated a system that gave the leaders of those agencies with specialized expertise as you guys mentioned a degree of independence like the Nuclear Regulatory Commission or the Equal Opportunity Employment Opportunity Commission, the Federal Election Commission. These are all things that I don't know maybe it's a good idea if the president can't fire the leader of these agencies and crypto of all industries has seen how powerful the the change in

leadership of an agency can be like they set the mandate they set the tone from the top they set the agency's priorities they can shift the enforcement landscape and I'm not saying they're they do this willy-nilly they don't but obviously this is going to have a trick trickle down effect across America. Like this is effectively reshaping the entirety of the federal government. So crypto is going to feel it. Other industries are going to feel it. Crypto is definitely going to feel it if the administration flips, guys, because Supreme Court decisions, they survive with Democrats or Republicans. So, you know, Republicans might be excited about this.

Trump might be excited about this, but I would I would imagine that Republicans are going to be very upset by this if there's a Democrat in >> fired a number of election commissioners since this. So, it's this isn't hypothetical. This is what the world will look like now, you know. >> Yeah. And I think like, you know, we say this all the time on this pod, like reminding the industry that this sort of thing cuts both ways, right? A decision that gives a pro- crypto administration more influence and power over the SEC and the CFTC would give exactly the same authority to a future administration with very different policy priorities.

So we always need to keep that in mind. >> Yeah. Yeah. Which is something that there's a lot happening now where crypto in particular is happy about it. Okay. Obviously, the change in regulatory agency posturing is at the top of that list, but I still remain concerned about a potential scenario. And this is all like this is where I think a cryptogc really adds value is mapping out different scenarios, okay? Like mapping out bull market, bare market, bad enforcement, good enforcement, M&A. Like there is a very real scenario that in a few years is going to be a reckoning.

loveied at the CFTC and the SEC and it's gonna rain down on us. Um, so I hope that doesn't happen. >> A little graphic like rain down on us, but you know, it's like >> I was just thinking about the Lady Gaga song because I feel like we need something a little lighter. This is this is getting perspectives. It will change our perspectives. It will make our jobs more challenging. But hey, maybe at that point, hopefully at that point, we'll be insulated by things like legislation, DVD. That was a clip from Dex in the City, where the wallets are cold and the takes are hot. And we've got a lot more in the full episode. Links in the show notes. I'm host Jesse Brooks. Subscribe

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