Suing the SEC

The United States Securities and Exchange Commission (“SEC”) is being sued far more than in the past. This phenomenon raises underexplored questions of enduring importance. When is it rational for a market participant to sue its regulator? Why, in the case of the SEC in particular, has there been—until recently—so little litigation challenging the agency? What does the recent period of intense litigation mean for the future of the SEC as an institution? This Article uses a rational actor model to help answer these questions. The model identifies the costs and benefits to a market participant of choosing to bring a legal challenge against the SEC. While it can be generalized to apply to the decision of a market participant to sue any regulator, careful attention to institutional context reveals how the magnitude of the variables on both sides of the ledger have shifted in recent years as it concerns suing the SEC in particular. These shifts help to make sense of not only the current moment in the SEC’s storied history, but also its relatively litigation-free past. The analysis leads to insights relevant to both predicting and shaping the SEC’s future.