SEC V. CHENERY CORP., 332 U. S. 194 (1947)

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U.S. Supreme Court

SEC v. Chenery Corp., 332 U.S. 194 (1947)

Securities and Exchange Commission v. Chenery Corporation

No. 81

Argued December 13, 16, 1946

Decided June 23, 1947*

332 U.S. 194


1. In approving a plan for the reorganization of a holding company under the Public Utility Holding Company Act of 1935, the Securities and Exchange Commission required that preferred stock purchased by the management without fraud or concealment while plans of reorganization were before the Commission should not be converted into stock of the reorganized company, like other preferred stock, but should be surrendered at cost plus interest. In SEC v. Chenery Corp., 318 U. S. 80, this Court held that this requirement could not be sustained on the sole ground upon which it was based by the Commission -- i.e., principles of equity judicially established. On remand, the Commission reexamined the problem and reached the same result, but based this requirement on the ground that to permit the management to profit from purchases of stock made while reorganization proceedings were pending would be inconsistent with the standards of §§ 7 and 11 of the Act. Held: the new order is sustained. Pp. 332 U. S. 196-199, 332 U. S. 209.

2. This Court's earlier decision held only that the requirement could not be supported on the sole ground stated by the Commission in its first order, and, on remand for such further proceedings as might be appropriate, the Commission was not precluded in the performance of its administrative function from reaching the same result on proper and relevant grounds. Pp. 332 U. S. 200-201.

3. The Commission's action was not precluded by the fact that the Commission had not anticipated this problem and adopted a general rule or regulation governing management trading during reorganization. Pp. 332 U. S. 201-202.

4. The choice between proceeding by general rule or by ad hoc decisions is one that lies primarily in the informed discretion of the administrative agency. Pp. 332 U. S. 202-203.

5. That an ad hoc decision of the Commission might have a retroactive effect does not necessarily render it invalid. P. 332 U. S. 203.

Page 332 U. S. 195

6. The scope of judicial review of an administrative decision in which a new principle was announced is no different from that in the case of ordinary administrative action. P. 332 U. S. 207.

7. The judicial function on review of an order of the Commission is at an end when it becomes evident that the Commission's action is based upon substantial evidence and is consistent with the authority granted by Congress. P. 332 U. S. 207.

8. In determining whether to approve a plan of reorganization under the Act, the Commission may properly consider that some abuses in the field of corporate reorganization may be dealt with effectively only by prohibitions not concerned with the fairness of a particular transaction. Pp. 332 U. S. 207-208.

9. In its interpretation and application of the "fair and equitable" rule of § 11(e), and of the standard of what is "detrimental to the public interest or the interest of investors or consumers" under §§ 7(d)(6) and 7(e), the Commission did not abuse its discretion in this case. P. 332 U. S. 208.

10. There was reasonable basis in this case for the conclusion that the benefits and profits accruing to the management from the stock purchases should be prohibited, regardless of the good faith involved. P. 332 U. S. 208.

11. The Commission's conclusion in this case is the product of administrative experience, appreciation of the complexities of the problem, realization of the statutory policies, and responsible treatment of the uncontested facts, and constitutes an allowable administrative judgment which cannot be disturbed on judicial review. P. 332 U. S. 209.

154 F.2d 6 reversed.

Upon remand to the Securities and Exchange Commission of the case decided by this Court in SEC v. Chenery Corp., 318 U. S. 80, the Commission denied an application for approval of an amendment of the plan of reorganization. Holding Company Act Release No. 5584. The court below reversed. 154 F.2d 6. This Court granted certiorari. 328 U.S. 829. Reversed, p. 332 U. S. 209.

Page 332 U. S. 196

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