Securities Law Section



Message from the Chair

Section Chair: 


 
Charles Niemeier
Williams & Connolly LLP
Washington, D.C.

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The Federal Bar Association - Securities Law Section is a proud sponsor of the virtual museum and archive of the history of financial regulation at www.sechistorical.org. While the museum is free and accessible to everyone at all times, the Section will highlight specific material and information within the museum on securities law issues in the coming months, providing current and prospective Section members with unique insight and context.

“The crucial constitutional issue, so far as the commerce clause is concerned,” wrote Justice Frank Murphy in 1946, in North American Co. v. SEC, “resolves itself into the query whether Congress may validly require holding companies engaged in interstate commerce to dispose of their security holdings and to confine their activities in accordance with the standards of [the Public Utility Holding Company Act of 1935].” Among the cases Justice Murphy cited was Wickard v. Filburn, a pivotal case that was decided four years earlier in 1942.

The issue in Wickard began with the Agricultural Adjustment Act of 1938. The Act limited the number of acres farmers could use for wheat production in order to stabilize rising national market prices. Roscoe Filburn, an Ohio farmer, was allotted just over 11 acres to sow his wheat at a yield of about 20 bushels/acre. However, Filburn sowed 23 acres of wheat and harvested over 200 more bushels than allotted, which subjected him to a penalty of $117, close to $3,000 today.

Filburn asserted that he planted the excess wheat to be used at his home and farm, and thus it was not subject to regulation as interstate commerce. The Supreme Court rejected Filburn’s argument and reasoned that, without his overage, Filburn would have bought more wheat on the open market. And, even if Filburn’s excess wheat remained on his premises, the cumulative effect of other farmers growing beyond their allotment would have substantial effects on interstate commerce. As Justice Robert Jackson wrote in the Court’s opinion, “…even if appellee’s activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce….”

In North American, the Court ruled that the SEC’s divestiture order did not violate the Commerce Clause. Using reasoning similar to its position on Filburn’s excess wheat, the Court rejected North American’s claim that owning securities in itself was not participation in interstate commerce. In the years since North American, Wickard has become one of the central Supreme Court decisions regarding interstate commerce—and it all goes back to 23 acres of wheat in Ohio.

Resources

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