What Twenty-First-Century Free Speech Law Means for Securities Regulation

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Helen Norton*

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 twenty-first-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.  As we’ll see, key differences between securities and other goods and services leave the securities market especially vulnerable to asymmetries of information, thus intensifying the importance of accurate securities-related information to investors as listeners.  The Article 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-facing methodology for determining these categories that turns on identifying a longstanding regulatory tradition of restricting speech within a category without triggering traditional 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 false and misleading statements and by requiring them to make certain accurate disclosures.

Securities law remains faithful to this tradition when it regulates securities-related speech to serve these listener-centered functions.  For this reason, securities law stays consistent with this regulatory tradition (and thus regulates within a category of unprotected speech) when it responds to the realities that the risks to investors change over time, and that investors evaluate those risks through a variety of methodologies.  Think, for instance, of disclosures that inform investors about risks and methodologies that were unknown to, or unrecognized by, past generations—think of asbestos and fentanyl, and also of climate change and cybersecurity.  That new risks to investors will arise (as well as new investor approaches to evaluating those risks) is foreseeable, even if the specific content of those risks and methodologies is not.  In other words, today’s securities laws address problems of informational asymmetries that are far from new.  So too do they deploy a set of solutions, like mandatory disclosures, to those problems that are also far from new.

This Article asserts 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.  Nevertheless, it 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.

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© 2023 Helen Norton.  Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice.

*University Distinguished Professor and Rothgerber Chair in Constitutional Law, University of Colorado School of Law.  Special thanks to Erik Gerding and Sarah Haan for so generously sharing their insights on securities law.  Thanks too for thoughtful questions and comments from RonNell Andersen Jones, Marc Blitz, Fred Bloom, Alan Chen, John Coates, James Cox, Jennifer Hendricks, Sharon Jacobs, Margot Kaminski, Mark Loewenstein, Toni Massaro, Nadav Orian Peer, Mike Pappas, Frank Partnoy, Robert Post, Andrew Schwartz, Miriam Seifter, Amanda Shanor, Scott Skinner-Thompson, Harry Surden, Jeremy Telman, and Alex Tsesis.  Finally, my thanks to Simon Furney and Brittany Porter for excellent research assistance.