What 21st-Century Free Speech Law Means for Securities Regulation

Abstract

Securities law has long regulated securities-related speech--and until recently, it did so with little, if any, First Amendment controversy. Yet the antiregulatory turn in the Supreme Court's 21st-Century Free Speech Clause doctrine has inspired corporate speakers' increasingly successful efforts to resist regulation in a variety of settings, settings that now include securities law. This doctrinal turn empowers courts, if they so choose, to dismantle the securities regulation framework in place since the Great Depression. At stake are not only recent governmental proposals to require companies to disclose accurate information about their vulnerabilities to climate change and other emerging risks, but also longstanding governmental efforts to inform and protect investors while serving broader public interests.

This Article takes seriously this threat to the securities law framework and defends that framework's constitutionality. It describes why and how securities law regulates speech to inform and protect investors--functions that also achieve public-regarding goals by facilitating stable and efficient markets, encouraging corporate accountability, and ameliorating the systemic economic risks of market collapse. It then maps this securities law framework onto First Amendment law, demonstrating why and how this regulatory framework aligns with Free Speech Clause theory and doctrine. Key to this alignment are securities law's listener-centered functions.

More specifically, this Article makes the case for identifying securities-related speech as a category of speech unprotected by the First Amendment. The Court has long considered the regulation of certain categories of speech as exempt from First Amendment review, and it has more recently announced a backwards-looking methodology for determining those categories that turns on identifying a longstanding regulatory tradition of restricting speech with a category without triggering First Amendment scrutiny. We can trace a lengthy regulatory tradition of responding to the informational asymmetries endemic to securities markets by prohibiting companies from making certain false and misleading statements and by requiring them to make accurate disclosures. This Article demonstrates how securities law remains consistent with this tradition (and thus regulates within a category of unprotected speech) through disclosures that inform investors' diverse approaches for assessing value and risk, including emerging risks like climate change.

While maintaining that the securities market is sufficiently distinct from other markets in its susceptibility to information asymmetries to justify recognizing securities-related speech as its own category of unprotected speech, this Article also considers the possibility that the Court will instead turn to an entirely separate doctrine for considering the constitutionality of securities law: the very different rules that apply to the government's regulation of commercial speech. Here too securities regulation's listener-centered functions do important First Amendment work, as much of the securities law framework satisfies review under commercial speech doctrine so long as we continue to tether commercial expression's constitutional protection to that expression's capacity to inform listeners' decisionmaking.

Keywords: first amendment law, securities regulation, free speech law, climate change, corporate governance, business law, commercial law, compelled commercial disclosures

JEL Classification: K1, K22, K30