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"Other" Important Supreme Court Rulings for Investment Advisers

With this year’s U.S. Supreme Court (the “Court”) term coming to a close, there has been a flurry of rulings that may substantially impact the securities industry.  While most are aware of the Court’s decision to invalidate the Defense of Marriage Act (“DOMA”), and the possible windfall that adviser’s may now experience as a result, there was another Court decisions that may also greatly impact investment advisory firms and their Chief Compliance Officers (“CCOs”). In the case of Vance v. Ball State University, the Court reviewed allegations of racial harassment in the workplace, and discussed whether an employee must have the power to tangibly affect the employment status of the victim in order to be considered a supervisor.  The Court decided to narrow the definition of "supervisor" in the workplace, making it so that supervisor means only, as Justice Samuel Alito wrote in the majority's opinion, someone who “is empowered by the employer to take tangible employment actions against the victim."  Thus, “supervisors” are now considered only those with the power to “hire, fire, demote, promote, transfer or discipline” employees. This ruling may be of particular importance to CCOs as a defense to whether or not they may be held liable as supervisors by the Securities and Exchange Commission (“SEC”) in regulatory matters.  Currently, the SEC uses a broad definition of “supervisor,” one that was first formulated in a 1992 case, and a SEC release, involving John Gutfreund.  This standard examines whether or not an individual has the responsibility, ability, or authority to affect the conduct of the employee whose behavior is at issue.   It is unclear just how far the Court’s ruling may extend.  However, it would appear as though the current SEC standard would no longer survive a court challenge.  It will be interesting to see whether or not the SEC responds to this ruling by altering its definition of “supervisor,” or if it will continue with its current interpretation.For further information on this, or other related topics, please contact us at [email protected] or (619) 298-2880.

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