End the SEC’s Access Rule, Don’t Mend It

Activists love it, but it is counterproductive, has no basis in statute, and could be unconstitutional

By Joseph A. Grundfest. He is a professor emeritus at Stanford Law School. He served as an SEC commissioner, 1985-90. Excerpts:

"Investors owning as little as $2,000 of a company’s stock—about 16 billionths of the average market capitalization of an S&P 500 company—can force a vote. Average monthly rent for a New York City apartment is roughly $3,500, 75% more than the rule’s minimum. This holding requirement might be the only thing in America not suffering an affordability crisis.

Only 11% of the proposals that proceeded to a vote in the 2025 proxy season gained majority support from voting stockholders. If a proposal is approved, the corporation’s board typically declines to implement it anyway. The Access Rule thus generates toothless, performative votes.

The rule is wildly popular with governance gurus and policy advocates. It’s a free soapbox that forces management to address issues they’d rather not discuss. To buy peace, executives will often make concessions in exchange for the activists’ withdrawing their proposals. If a proposal fails, activists still demonstrate to supporters a willingness to confront the corporation. Just because a proposal is performative doesn’t mean it’s ineffective."

"The Access Rule . . . commandeers the corporate proxy to compel votes on shareholder proposals, an encroachment not authorized by federal securities law." 

Collecting Jurisdiction: The SEC’s Wrongheaded Expansionary Approach to NFTs

By Jennifer J. Schulp and Jack Solowey of Cato.

"What do Yankees tickets and Pokémon cards have in common? If you guessed wish list items for elementary school kids, you wouldn’t be wrong. But another thing they share is that Securities and Exchange Commission (SEC) Chairman Gary Gensler has been asked to opine on whether they are securities during congressional testimony.

To most people, the answer to that question seems easy: Pokémon cards aren’t traded on the New York Stock Exchange—and neither are Yankees tickets—so they must be different from securities like Walmart or Tesla stock, right? That’s hardly a technical analysis (and decidedly not legal advice), but it reveals a piece of common sense underlying our intuitions about securities laws: If we buy something that has some use—even if we hope that it may become more valuable—it is usually not treated as a security subject to all of the rules and regulations that go along with offering and trading investment assets.

But, in yet another example of Gensler’s expansive view of SEC jurisdiction, his answers to Rep. Ritchie Torres (D‑NY) on whether items like Pokémon cards and baseball tickets are securities were not definitive and seemed to rest on an incoherent theory that takes into account whether the assets are in some way stored on a blockchain. That doesn’t sound like the “technology neutral” regulator the SEC claims to be.

Unfortunately, this isn’t just the idle musing of an agency head dreaming of enlarging its fiefdom. The SEC has settled several actions asserting that NFTs (i.e., non-fungible tokens) granting holders certain rights to digital art and exclusive restaurant access were unregistered securities. (The SEC has also issued a Wells Notice, indicating that it intends to file an enforcement action, against a platform that facilitates NFT trading.)

The stated rationale for these actions is that purchasers of the NFTs were led to expect profits when the token appreciated in value based on the efforts of the NFT issuer. In the Commission’s view, this ostensibly meets the criteria set out by the Supreme Court for when something qualifies as an investment contract subject to SEC jurisdiction. But as SEC Commissioner Mary Uyeda has noted, considering “any item sold whose value is based on the efforts of others” to be a security “would appear to scope in many common transactions in the non-digital world, including pre-purchase commitments, collectibles, art, and land.” That’s exactly what the SEC appears to be doing.

NFTs are unique digital tokens that typically are employed to represent (though not necessarily legally confer) ownership of a physical or digital asset. NFTs and cryptocurrencies use the same underlying blockchain technology, but they differ in important respects, most notably in that cryptocurrencies are fungible—meaning that two units of the same cryptocurrency are interchangeable—whereas NFTs are not.

While in one sense NFTs can be thought of as assets themselves, they also can be thought of as something like “certificates of authenticity” that provide a way of verifying that the NFT holder has an ownership claim, access right, or connection to another asset or file that the NFT is linked to (such as a piece of art, digital content, or membership pass). However, the legal rights of a token holder, such as intellectual property and other ownership rights, cannot be assumed based on possession of the token alone and may require reference to additional off-chain legal frameworks.

NFTs can serve a variety of functions, such as representing ownership of real-world or digital assets like art, facilitating benefits like access to a real-world or digital social club or automated royalty payments, or eligibility for discounts associated with customer loyalty rewards, to name a few. Buyers of NFTs may want to collect them, receive the benefits associated with them, or speculate that their future value may rise.

But the fact that someone buys something in hopes that it will appreciate—like a Pokémon card collector or reseller of Yankee playoff tickets—does not turn the item into a security. Where an item has a use unconnected to its appreciation in value, as many NFTs do, it’s even easier to see this because a purchaser may not intend to use the item as an investment. 

The securities laws evolved in no small part to address the risks posed to investors by a managerial body’s ability to possess information that investors do not and that body’s capacity to act at odds with investors’ best interests. Yet, as SEC Commissioners Hester Peirce and Mark Uyeda recognized when dissenting from the Commission’s settlement with Flyfish Club, LLC—which offered NFTs that granted holders access to its restaurant—this type of securities analysis is “inapt because holders of Flyfish NFTs had a reasonable expectation of obtaining wonderful culinary experience and other exclusive member experiences based on the managerial and entrepreneurial efforts of Flyfish and its principals. Whether their expectations will be met should not be judged by a securities regulator” (emphasis added).

The SEC claims to be looking at the “economic reality” of the NFT offering to determine that it falls within the securities laws. But as Commissioners Peirce and Uyeda remarked when dissenting from the settlement with Stoner Cats 2, LLC, which sold NFTs connected to digital art (of stoned cats): “The Stoner Cats NFT purchasers received what they paid for—a still image of a character from the series, access to all six episodes of the Stoner Cat series, and the excitement of being part of a popular phenomenon.” This economic reality isn’t enough to bring a project within the SEC’s jurisdiction because, if it was, every sale of fine art would fall within the SEC’s purview—something that the SEC has acknowledged is not the case. 

That’s not to say that NFTs can never fall within the ambit of the securities laws but rather that it is far from a given that any particular NFT does. The SEC’s jurisdictional grabs—from collectibles to digital art markets to social club memberships—deter artists and other creatives from experimenting with methods to monetize their work. Uncertainty about whether they will face an SEC investigation may chill experimentation, in part by prohibitively raising costs related to legal counsel (or more proactively, for taking legal action against the SEC for clarity). 

Recently, Rep. William Timmons (R‑SC) floated legislation, the “New Frontiers in Technology Act,” seeking to exclude NFTs that relate to works of art, collectibles, loyalty points, and tickets (among other things) from coverage under the securities laws. Whether as a result of legislation or otherwise, though, the SEC needs to walk back from its untenable position that anything purchased that may rise in value is a security—a position that needs to be revised not only for NFTs but for technological innovation more broadly."

The Exxon Directors and the Proxy Abusers

Progressives retaliate after the company fights back against a shareholder resolution that would harm other investors

WSJ editorial. 

"Progressives are abusing the shareholder proxy process to drive their climate and social agenda, and now they want to punish Exxon Mobil for daring to fight back.

California Public Employees’ Retirement System (Calpers) on Monday said it would vote against all of Exxon’s directors at its shareholder meeting next week. Proxy adviser Glass Lewis last week recommended that shareholders reject Exxon’s lead independent director Joseph Hooley’s re-election, citing “unusual and aggressive tactics” against activist investors.

Majority Action, a leftist outfit, is also prodding institutional investors to oust CEO Darren Woods and Mr. Hooley for “attacking shareholder democracy and failing to address climate risk.” Far from protecting shareholder rights, these agitators want to punish Exxon and its investors for refusing to surrender.

Exxon filed a federal lawsuit in January to block a shareholder resolution by Follow This and Arjuna Capital that sought to force steep cuts to the company’s CO2 emissions, including any from the combustion of its products. As Exxon explained in its suit, the resolution would force it to “change the nature of its ordinary business or to go out of business entirely.”

Follow This and Arjuna invest in companies to drive their anti-fossil-fuel agenda. As Follow This says, “we buy shares in order to work on our mission to stop climate change, not to make a financial profit,” and to make producers “stop exploring for more oil and gas and start exploring for new business models.”

The Securities and Exchange Commission’s longstanding rules let public companies block shareholder resolutions that affect a company’s “ordinary business operations.” But current SEC Chair Gary Gensler has declined to let companies nix resolutions if they have a “broad societal impact.” Read: political impact.

As a result, annual proxy voting has increasingly become a shareholder plebiscite on environmental, social and governance (ESG) matters. All shareholders pay for the costs that companies incur responding to such resolutions, which the SEC estimates at $150,000 per proposal. They also distract boards from more important business.

Arjuna and Follow This in February dropped their resolution, perhaps worried that they might be required to pay legal damages if they lost. Yet Exxon has continued its lawsuit because it says “the underlying issue remains and must be resolved.” That is, can progressive activists harass companies with ESG resolutions that seek to harm other shareholders?

“Until the courts weigh in, activist investors will continue, with the SEC’s approbation, to inundate public corporations with proposals designed to push an ideological agenda divorced from the success of the corporation,” the U.S. Chamber of Commerce and Business Roundtable wrote in a friend-of-court brief for Exxon.

Courts have ruled that cases aren’t moot unless it’s clear that defendants won’t resume their allegedly wrongful behavior. Arjuna and Follow have twice pursued unsuccessful resolutions to force Exxon to reduce its emissions. Who doubts that they will introduce similar proposals in the future?

This explains the retaliation against Exxon because progressives fear a judge could stop their corporate harassment. “Decades of shareholder rights are under threat from a lawsuit filed by the leaders of a powerful U.S. corporation, designed to punish two small groups that dared to speak truth to power,” Calpers leaders said Monday.

The real threat to shareholders is progressive investors with minor stock holdings who want to commandeer and destroy companies for their own political ends."

No, the SEC Can’t Regulate Climate Change

If Congress wanted to authorize that, it would have said so

By Donald Kochan.

"Justice Antonin Scalia cautioned more than 20 years ago that Congress doesn’t “hide elephants in mouseholes.” When Congress chooses not to pursue a certain policy or delegate a new authority, it isn’t inviting administrative agencies to step in and fill the empty space. But federal agencies are increasingly attempting to impose major climate regulations with no mandate from Congress.

In its June 2022 decision in West Virginia v. Environmental Protection Agency, the Supreme Court made clear that federal agencies may not assert “highly consequential power beyond what Congress could reasonably be understood to have granted.” The EPA couldn’t find a provision in the Clean Air Act in which Congress gave the agency sweeping authority to restructure the country’s mix of electricity generation with its Clean Power Plan. Under the so-called major-questions doctrine, an agency action of political and economic significance—such as regulating carbon emissions—requires clear congressional authorization. The EPA didn’t have it, so the Clean Power Plan had to go.

With its recently proposed climate change policies, the Securities and Exchange Commission is similarly trying to exercise authority it doesn’t have. In an April 2022 rulemaking, the SEC proposed a set of expansive and costly regulations that would require public companies registered with the SEC to publish information about “climate-related risks” in annual reports and audited financial statements if those risks are “reasonably likely to have a material impact” on a company’s “business, results of operations, or financial condition.” The SEC also proposed requiring disclosure of registrants’ direct greenhouse-gas emissions as well as those from its purchases of electricity and its supply-chain partners.

This isn’t mere “disclosure.” It’s a heavy regulatory burden designed to serve climate policy goals, and it goes beyond the SEC’s statutory authority.

Climate change involves some of the biggest and most complicated policy debates of our day. A financial regulator empowered by Congress only to police fraud and protect investors isn’t equipped to engage with the policy questions surrounding climate change. That’s a mousehole of authority. There’s no room in it for a climate elephant to hide.

West Virginia v. EPA clearly poses a problem for the SEC’s climate proposal—and the commission knows it. Chairman Gary Gensler acknowledged that the case is “significant and meaningful,” and former Commissioner Joseph Grundfest noted that the SEC “was thrown for a loop” by the high court’s ruling. Nevertheless, the commission seems determined to dictate broad-reaching climate rules. In January, the SEC asserted that its climate disclosure requirements will be promulgated as a final rule in April 2023.

West Virginia v. EPA should serve as a clear warning to the SEC and other federal agencies—including the National Aeronautics and Space Administration, the Defense Department and the General Services Administration—not to act outside their purviews. If Congress had wanted them to have such broad power, it would have given it to them.

Mr. Kochan is a professor and executive director of the Law and Economics Center at George Mason University’s Antonin Scalia Law School."