Missouri urges court to toss SIFMA lawsuit over ESG investment rules


Missouri has asked a federal court to toss a lawsuit filed by the Securities Industry and Financial Markets Association over the state’s first-of-its-kind anti-environmental, social and governance investing rules, arguing that the securities association lacks standing to bring the lawsuit.

The dispute stems from Missouri’s four-month-old investment rules that require advisors and broker-dealers to disclose and obtain customers’ written consent to buy or sell an investment product based on social or other non-financial objectives. The disclosure would require an acknowledgment that incorporating ESG considerations “will result” in investments and advice “that are not solely focused on maximizing a financial return for the client.”

In August, a month after the rules took effect, SIFMA sued Missouri in the U.S. District Court of Western District of Missouri, Central Division, naming Missouri Secretary of State John “Jay” Ashcroft and Missouri Securities Commissioner Douglas Jacoby in the complaint.

Missouri’s new investment rules, overseen by Secretary of State John Ashcroft, are in place to protect Missouri investors who may be affected by ESG-related investment decisions, Ashcroft argued in a court motion to dismiss SIFMA’s lawsuit.

Missouri Secretary of State office

Ashcroft, who is the son of the former U.S. Attorney General John Ashcroft, enacted the rules after lawmakers failed to pass a bill with the same goals. Other Republican states are considering the measure, with Wyoming’s Secretary of State laying out a similar proposal.

The rules open a new front of efforts in the Republican-led anti-ESG battle by attempting to directly regulate asset managers, as bills passed to date have regulated state funds or contracts.

SIFMA argued the rules conflict with federal securities laws that call for a uniform regulatory and disclosure regime across the states. “This type of regulation is entirely novel,” the trade association said in the complaint, adding that Missouri goes “grossly overboard” lumping all nonfinancial objectives together. “There is no precedent for it in the securities laws and none of the other 49 states require it.”

Missouri in October asked the court to dismiss the complaint based in part on the standing argument, and SIFMA responded with an amended complaint that “addressed only some of the standing issues” raised in the state’s original motion, the state said in its Nov. 6 updated motion to dismiss.

The rules, the state argues, are in place to protect Missouri investors and “merely require that customers know and give consent before professionals make these decisions with their money.”

SIFMA “lacks associational standing and all of its claims lack merit,” the state argues in the motion. “Federal law expressly invites states to require honest dealing and disclosure to investors, and the rules reach only those entities and practices open to state regulation,” Ashcroft said, adding that SIFMA “can’t name a member that objects to the disclosures’ content.”

SIFMA argued that the state’s rules are preempted by the National Securities Markets Improvement Act and the Employee Retirement Income Security Act of 1974, claims that the state contests.

As to SIFMA’s argument that the rules violate the First Amendment, Ashcroft argued that the rules “merely require disclosures that are commercial speech, are factual, and are not controversial, and otherwise survive either rational basis or intermediate scrutiny.”

The state’s motion includes previous comments from Ashcroft defending the new requirements: “Under my rule, pension-fund and asset managers are still able to offer ESG products in Missouri. Even if financial common sense counsels against it, economic freedom requires as much, and ESG deserves the chance to compete in the open market—just as investors deserve openness from the financial companies pushing these products.”

A scheduling conference hearing is set for Dec. 14.

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