Business briefs
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The Supreme Court strips the SEC of a critical enforcement tool
in fraud cases
WASHINGTON | The Supreme Court on Thursday stripped the Securities and Exchange Commission of a major tool in fighting securities fraud in a decision that also could have far-reaching effects on other regulatory agencies.
The justices ruled in a 6-3 vote that people accused of fraud by the SEC, which regulates securities markets, have the right to a jury trial in federal court. The in-house proceedings the SEC has used in some civil fraud complaints, including against Houston hedge fund manager George Jarkesy, violate the Constitution, the court said.
“A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Chief Justice John Roberts wrote for the court’s conservative majority.
Justice Sonia Sotomayor, who read from her dissent in the courtroom, said that “litigants who seek to dismantle the administrative state” would rejoice in the decision.
Federal agencies that oversee safety in mines and other workplaces are among many that can only impose civil penalties in in-house, administrative proceedings, Sotomayor wrote, joined by Justices Ketanji Brown Jackson and Elena Kagan.
“For those and countless other agencies, all the majority can say is tough luck; get a new statute from Congress,” she wrote.
The case is among several this term in which conservative and business interests are urging the nine-member court to constrict federal regulators. The court’s six conservatives already have done so, including in a decision last year that sharply limited environmental regulators’ ability to police water pollution in wetlands.
Still awaiting decision are cases calling on the court to overturn the 40-year-old ruling colloquially known as Chevron, which has made it easier to sustain regulation of the environment, public, health, worker safety and consumer protection. Some of the same parties that supported Jarkesy at the Supreme Court are calling for Chevron to be overturned.
The SEC was awarded more than $5 billion in civil penalties in the 2023 government spending year that ended Sept. 30, the agency said in a news release. It was unclear how much of that money came through in-house proceedings or lawsuits in federal court.
The agency had already reduced the number of cases it brings in administrative proceedings pending the Supreme Court’s resolution of the case.
The high court rejected arguments advanced by President Joe Biden’s Democratic administration that relied on a 50-year-old decision in which the court ruled that in-house proceedings did not violate the Constitution’s right to a jury trial in civil lawsuits.
The justices ruled in favor of Jarkesy after the SEC appealed a decision in which the New Orleans-based 5th U.S. Circuit Court of Appeals threw out stiff financial penalties against Jarkesy and his Patriot28 investment adviser.
The appeals court found that the SEC’s case against Jarkesy, resulting in a $300,000 civil fine and the repayment of $680,000 in allegedly ill-gotten gains, should have been heard in a federal court instead of before one of the SEC’s administrative law judges.
Jarkesy’s lawyers noted that the SEC wins almost all the cases it brings in front of the administrative law judges but only about 60% of cases tried in federal court.
The appeals court also said Congress unconstitutionally granted the SEC “unfettered authority” to decide whether the case should be tried in a court of law or handled within the executive branch agency. And it said laws shielding the commission’s administrative law judges from being fired by the president are unconstitutional.
Those issues got virtually no attention during arguments in November, and the court chose to resolve the case only on the right to a jury trial.
Racial justice,
free speech groups join fight against TikTok ban
A dozen social and racial justice groups said Thursday that the federal effort to require a sale or ban of TikTok would suppress speech from minority communities by disrupting a critical tool many use to establish connections online and advocate for causes.
The legal brief, submitted to a federal court in Washington, comes as TikTok and its Beijing-based parent, ByteDance, are waging a consequential legal battle against the law, which would disrupt the platform’s U.S. operation to address bipartisan concerns about the popular app.
Thursday is the deadline for third-party groups to file documents supporting the social video platform and eight TikTok creators who sued the U.S. government last month. The two cases have since been consolidated.
The legal filing submitted Thursday came from a diverse set of organizations, including the New York-based Asian American Federation, a Washington-based nonprofit called the Hispanic Heritage Foundation, a Virginia-based transgender advocacy organization named the Calos Coalition and the Muslim Public Affairs Council.
In the brief, the groups wrote that TikTok has been instrumental to advocacy around various issues, such as reproductive rights and opposition to anti-LGBTQ+ legislation around the country.
They say the platform has empowered diverse communities in online conversations and placed “marginalized views squarely before new audiences,” enabling them “to break down stereotypes that persist in America and globally.” The brief claims this happens because the platform gives communities increased reach and the ability to bypass “entrenched hierarchies” found on other social media platforms.
TikTok has also received support from other organizations, which have echoed arguments the company has made in its lawsuit against the government.
On Wednesday evening, seven other free speech-oriented advocacy groups submitted a brief to the court, arguing the law would infringe on the First Amendment and make it impossible for users to associate on the app. Some digital rights groups like the Electronic Frontier Foundation have previously expressed support for the company or sided with it in a similar lawsuit against Montana last year.
The libertarian public interest firm Institute For Justice and Reason Foundation also filed a brief Thursday supporting TikTok’s free speech claims. Both groups have received donations from the Susquehanna Foundation, a sister organization to the trading firm co-founded by prominent ByteDance investor and Republican megadonor Jeff Yass.
The federal law, which President Joe Biden signed as part of a larger foreign aid package in April, is the U.S. government’s attempt to deal with long-running national security concerns about TikTok’s presence and reach in the U.S.
Lawmakers from both parties and some administration officials have said TikTok’s current ownership structure poses a threat since ByteDance operates under the laws of the Chinese government. They say Chinese authorities could force ByteDance to hand over U.S. user data or sway public opinion towards Beijing’s interests by tinkering with the algorithm that populates users’ feeds. However, the government hasn’t provided public evidence to support either claim.
The racial and social justice groups argue in their filing that anti-Asian sentiments clouded discussions around the law. Many TikTok creators have also opposed the measure, which marks the first time the U.S. has singled out a social media company for a potential ban. It gives ByteDance nine months to sell TikTok, and a possible three-month extension if a sale is in progress.
However, both companies have argued they would have to shut down TikTok’s U.S. operation by Jan. 19 because continuing to operate in the U.S. wouldn’t be commercially, technologically or legally possible if forced to divest.
Last week, TikTok filed another legal brief giving its account of negotiations it held with the Biden administration since 2021. The company said it presented a draft agreement in August 2022 but claimed the administration “ceased any substantive negotiations” with its attorneys after that.
The Justice Department said in a statement last week that it’s looking forward to defending the recently enacted legislation, which addresses “critical national security concerns in a manner that is consistent with the First Amendment and other constitutional limitations.”
The Cato Institute, a Washington-based libertarian think tank, is also expected to file a legal brief supporting TikTok. Yass currently serves as Cato’s vice chair.
Walgreens
looking to close
underperforming stores
Walgreens is finalizing a plan to fix its U.S. business that could result in closing hundreds of additional stores over the next three years.
CEO Tim Wentworth told analysts Thursday morning that “changes are imminent” for about 25% of the company’s stores, which he said were underperforming. The drugstore chain currently runs more than 8,600 in the United States.
Wentworth said the company’s plan could include the closing of a “significant portion” of those roughly 2,100 underperforming stores if they don’t improve.
Company leaders said they’ve already closed 2,000 locations over the last 10 years. Overall, the company runs about 12,500 drugstores worldwide.
“We are at a point where the current pharmacy model is not sustainable and the challenges in our operating environment require we approach the market differently,” he said.
Walgreens and major competitors like CVS and Rite Aid — which is going through a bankruptcy reorganization — have been closing stores as they adjust to an array of challenges to their businesses. They include include years of tight reimbursement for their prescriptions and rising costs for running their locations.
Plus, analysts say they’ve also been hit by growing competition from Walmart, Amazon and other discount retailers over sales of goods sold outside their store pharmacies. Consumers also tend to grow more price conscious when inflation rises, and drugstores generally have higher prices than those discounters.
“Our customers have become increasingly selective and price sensitive in their purchases,” said Wentworth, who joined the company last fall and has been conducting a review of its business.
Walgreens also has been closing VillageMD primary care clinics it had been installing next to its stores in order to grow its presence as a health care provider. The company had launched an aggressive expansion of those clinics under previous CEO Rosalind Brewer. But Walgreens said in March that it was reversing course and closing around 160 of the clinics.
Primary care clinics like the ones VillageMD operate tend to lose money their first couple years as they build a patient base and improve health. Jefferies analyst Brian Tanquilut has said the new clinics were burning a lot of cash and racking up losses.
But Wentworth said Thursday those clinics were now on a “clearer path to profitability.”
The CEO also said his company is talking to pharmacy benefit managers to “ensure that we are paid fairly” and working to grow other parts of its business like specialty pharmacy. That helps people with complex or chronic medical conditions.
Walgreens Boots Alliance Inc. also reported that it missed earnings expectations and cut its annual forecast.
The company earned $344 million in its fiscal third quarter, with adjusted results totaling 63 cents per share. Revenue rose nearly 3% to $36.35 billion.
Analysts were looking for earnings of 68 cents per share on $35.9 billion in revenue, according to FactSet.
Walgreens now expects adjusted earnings to range from $2.80 to $2.95 for its fiscal year, which ends in August. That’s down from a forecast of $3.20 to $3.35 per share that it had narrowed in March.
Analysts expect $3.20 per share.
That guidance cut was not “overly shocking to us as the company now begins the next leg of its turnaround,” Leerink Partners analyst Michael Cherny said in a research note.
But the overall results surprised investors. Shares of the Deerfield, Illinois, company plunged 22% to end Thursday at $12.19, by far the stock’s biggest single-day percentage decline on record. Walgreens’ shares have already shed more than half their value so far this year.
—From AP reports
