Are the Courts a Remedy for Nation’s Financial Truth-Tellers?

This month, the U.S. Supreme Court dealt a blow to the Regulatory State. Financial analysts, fiduciaries, auditors and appraisers should take heart. Those targeted by a growing number of independent agencies, boards and commissions may now immediately challenge an agency’s constitutionality in federal court without having to submit to a drawn-out administrative process that frequently serves only the interests of the agency being challenged.

The decision couldn’t have come soon enough, as an army of assorted technocrats, believers, grand viziers, cronies, hustlers and more than a few out-and-out crooks in government have introduced self-serving ideologies into the federal bureaucracy. America is fast becoming the Ottoman Empire on steroids. This high-court ruling may start to reverse the trend.

Truth-tellers like fiduciaries, auditors, financial analysts, fund managers and appraisers – people hired to render disinterested financial opinions and make good-faith decisions in the interests of others – are increasingly under threat. To these practitioners, the current interference by benighted – or bought – government officials trumpeting vagaries like “social investing” and “equity” feels like a cosmic joke. Politicized boards and commissions with little accountability to the electorate want to deplatform these truth-tellers at every turn.

In Axon Enterprise v. FTC and SEC v. Cochran, private litigants sought to challenge the actions of the Federal Trade Commission and the Securities and Exchange Commission respectively on grounds that the agencies were unconstitutionally structured with too little accountability to the public. But the separate question before the justices was whether the litigants were compelled to first submit to the agencies’ long and costly administrative processes before they could elevate the matter to federal court. That hurdle has now been overcome with the justices’ unanimous decision. Good for them.

But the truth-tellers have always had certain legal arrows in their quiver, such as Section 1983 litigation and the so-called Bivens action. When a citizen’s rights to free speech, due process and equal protection under the law are threatened by a federal official, a state official or private individuals working with government officials, the remedy can potentially be found here.

The 1983 litigation refers to lawsuits brought under Section 1983 of Title 42 of the United States Code (42 U.S.C. § 1983). It provides an individual the right to sue state government employees and others acting “under color of the law” when they violate another’s civil rights (such as the right to free speech enshrined in the First Amendment or the right to due process and equal protection promised by the 14th Amendment).

A Bivens action is a similar type of lawsuit that allows individuals to sue federal officials for damages when their constitutional rights have been violated. Federal officials are typically only sued under Section 1983 if they act alongside state or local officials.

These legal avenues hold government actors accountable.

Under both, victims may, depending on the circumstances, pursue monetary damages or an injunction to stop the improper conduct. Below are some old and new possible remedies:

• A real property appraiser could sue U.S. Housing and Urban Development Secretary Marcia Fudge and private individuals working with HUD in a Bivens claim if the cabinet secretary’s recent approval of $54 million in grants to 182 nonprofits to combat a make-believe problem known as “appraisal bias” were found to be simply an attempt to chill the protected free speech of appraisers through harassment by private individuals.
• Citing the recent Axon v. FTC case, an auditor could directly challenge the constitutionality of the Public Company Accounting Oversight Board – an opaque nonprofit imbued with governmental powers by Sarbanes-Oxley. It operates largely outside government scrutiny, yet it acts in the name of government.
• An investment fiduciary could sue individuals at a state pension regulator under Section 1983 if forced by regulation to advocate so-called “social investing,” thus violating the sole-interest rule that requires fiduciaries to act to maximize financial returns, not to promote social or political causes.
• Citing Axon, an appraiser could challenge the funding structure of an abusive federal agency known by the long-winded name the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. Exempted from the annual congressional appropriations process, individuals at the agency violate the Constitution’s Spending Clause, and the way it strong-arms states to collect money for its annual budget violates the Commandeering Clause, a provision in the 10th Amendment.
• A property appraiser could file a Section 1983 lawsuit against individual state licensing board members if the latter conspire to deny the appraiser the right to simply conclude an independent opinion of value, even when the opinion differs from the opinion of an outside “expert” brought in by the board members to gainsay the appraiser.
• A property appraiser could file a Section 1983 lawsuit against her state licensing board members if she is being disciplined by individuals who are themselves in violation of the state’s administrative procedure act (Texas, California, Washington State, West Virginia, Colorado, Tennessee, South Carolina and Rhode Island are currently among them).

The nation’s financial truth-tellers should not look for help from private companies. Many sectors would like to see them weakened. Nor should they expect help in such challenges by the legion of administrative law attorneys who have carved out a lucrative niche quibbling with unconstitutionally structured boards and commissions on behalf of clients these panels whimsically target.