From Judicial Watch,
– To give some perspective on the controversies we’ve witnessed in this election, remember that four years ago this week Obama, Biden and Comey were talking about spying on and targeting Donald Trump and his team for prosecution.
In my view, the election results in the various battleground states were compromised by unlawful rule changes that led to votes being counted that shouldn’t have been counted. State legislatures, the courts – in particular the Supreme Court – and Congress failed to seriously grapple with these and other problems. It is shameful. And the inexcusable and deadly violence at the U.S. Capitol is being used by the Left to suppress all its conservative and other principled opposition. The Leftists at Big Tech are banning conservatives for even talking about election fraud!
The Left is even talking about impeachment again! They don’t, as they claim, want to remove our president because he incited violence. He didn’t – and they don’t care much about violence as they endorse and use it regularly. No, they want to abuse impeachment again to undermine someone who is likely to be an effective opposition voice.
So, as we look ahead, you won’t be able to rely on the corrupt media or Congress to hold the government to account. Judicial Watch will be only game in town, more or less, when it comes to investigating and litigating over government corruption in the new Biden administration.
Over 4,700 Georgia Absentee Votes Tied to Non-Residential Addresses
You can trust Judicial Watch to investigate and expose the conduct of the 2020 elections. Our efforts are well underway with dozens of open records requests and other investigations.
For example, we just collected voter data showing that more than 4,700 absentee voters in the presidential election listed non-residential addresses as their places of residence. Georgia law requires citizens registering to vote to reside “in that place in which such person’s habitation is fixed …”
We shared our data with the Georgia Secretary of State and requested an investigation.
A total of 9,989 Georgia voters seem to be registered at non-residential addresses: 1,882 at commercial addresses, 1,336 registered at county and state governmental buildings, and 6,735 at either hotels or motels.
Additionally, 215 new registrations (between November 4-December 14) for the special election are linked to non-residential addresses.
We previously alerted the Georgia Secretary of Office to the voter registration address issue in April 2020.
This issue must be immediately investigated. We are concerned about the impact on Georgia’s elections in November and earlier this week.
This is part of our years-long effort to clean up voter rolls.
In September 2020, we released a study revealing that 353 U.S. counties had 1.8 million more registered voters than eligible voting-age citizens. In other words, the registration rates of those counties exceeded 100% of eligible voters.
In Georgia: Bryan County (118%); Forsyth County (114%); Dawson County (113%); Oconee County (111%); Fayette County (111%); Fulton County (109%); Cherokee County (109%); Jackson County (107%); Henry County (106%); Lee County (106%); Morgan County (105%); Clayton County (105%); DeKalb County (105%); Gwinnett County (104%); Greene County (104%); Cobb County (104%); Effingham County (103%); Walton County (102%); Rockdale County (102%); Barrow County (101%); Douglas County (101%); Newton County (100%); Hall County (100%)
You can learn more about our election efforts here
.Inactive Registrations Stayed on Kentucky Rolls Despite Consent Decree
Even when Judicial Watch succeeds in court to ensure better election integrity, we face continued battles from government officials who try to undermine our success.
The U.S. District Court for the Eastern District of Kentucky has agreed that Kentucky’s former Democrat Secretary of State Alison Lundergan Grimes breached the terms of a National Voter Registration Act (NVRA) Consent Judgment with us.
She delayed sending out voter notices, which allowed the names of people who have died or moved away to remain on the Commonwealth’s voter rolls.
As a result of the breach, District Court Judge Gregory F. Van Tatenhove extended the judgment beyond its termination date from October 31, 2023, to March 31, 2025, which allows it to encompass one additional federal election. Kentucky is set to remove over 250,000 names from the voter rolls under the terms of the consent judgment.
By breaching the court’s decree and delaying sending out voter notices before a critical deadline, Kentucky allowed outdated registrations to remain on the rolls through the 2022 midterm federal elections, two years longer than Kentucky agreed to in the original judgment.
This latest court ruling comes in our 2017 lawsuit under the NVRA (Judicial Watch, Inc. and the United States of America v. Alison Lundergan Grimes, et al. (No. 3:17-cv-00094)). (The original defendant has since been replaced by Michael Adams, the new secretary of state elected in November 2019.) In June 2018, with our agreement, the Justice Department moved to intervene in the lawsuit against Kentucky.
The court agreed with us that “the initial Defendants breached the Consent Judgment” by failing to send address notices in time:
Since [the secretary of state’s office] failed to follow up with the [lawfully required] notices … registrations belonging to those with a change of address cannot be cancelled after the November 2020 election.… Therefore, this inaction delayed Kentucky’s progress toward “ensuring an accurate and current voter registration” list, one of the main purposes of the NVRA and Consent Judgment.
For years prior to entering into the Consent Judgment, Kentucky had been in violation of the NVRA’s requirement to keep its voter rolls up to date, which forced us to sue to bring the Bluegrass State into compliance with the law. Our lawsuit against Kentucky alleged that 48 counties had more registered voters than citizens over the age of 18. The suit noted that Kentucky was then one of only three states in which the statewide active registration rate was greater than 100% of the age-eligible citizen population.
In signing the Consent Judgment, Kentucky acknowledged:
[T]he practices currently in place in Kentucky do not comply with the NVRA’s requirement that states conduct a general voter registration list maintenance program that makes a reasonable effort to remove ineligible persons from the voter rolls due to a change in residence outside of the jurisdiction …
Why would a leftist secretary of state purposefully allow ineligible names to remain on Kentucky’s voter rolls in violation of a federal court’s consent decree? We know, don’t we? Dirty voting rolls make it easier to steal elections. That’s why our litigation to clean up rolls across America is urgent.Judicial Watch Exposes a $1 Billion Mask Deal Between California and Chinese Company
Judicial Watch could spend all our time on the accountability and corruption issues tied the coronavirus issue.
We received 848 pages of documents revealing the details of a $1 billion contract for face masks between the California Office of Emergency Services and the Chinese Communist Party linked BYD.
BYD is controversial:
[T]he first company the FDA approved has been prohibited
by law from bidding for some federal contracts in the United States. Although the company, BYD, is a major global player in the electric vehicle and lithium battery markets, it also has glaring red flags on its record, experts warn, including a history of supplying allegedly faulty products to the U.S., ties to the Chinese military and Communist Party, and possible links to forced labor. BYD also has no history of making personal protective equipment …
Moreover, the documents reveal that the Office of Emergency Services Assistant Chief Counsel admits that they deviated from their normal procurement process for this contract. Additionally, in the contract between Office of Emergency Services and BYD, BYD uses a different name, Global Healthcare Product Solutions, LLC., and BYD provides no liability or warranty for the masks if they are faulty.The records were produced in response to our California Public Records request sent to the California Governor’s Office of Emergency Services for all records and communications related to the state’s contract for masks with BYD.
The records include an April 7, 2020, email from the Office of Emergency Services Assistant Chief Counsel Jennifer Bollinger to Oscar Su, Senior Director of BYD America, in which Bollinger states, “Our normal procurement process has been deviated from given the exigency of the situation.”
In an April 6, 2020, email Stella Lu, the president of BYD Motors (the guarantor of the masks) tells Mark Ghilarducci, the director of the Office of Emergency Services that they should, “open champagne tomorrow morning at our conference call,” where they will finalize the purchase by California of $1 billion worth of BYD masks.
On April 7, John Zhuang, counsel for BYD and BYD’s lead negotiator, sent the finalized contracts to Bollinger, who led the negotiations for the Office of Emergency Services. Bollinger replied, “This is very exciting!!! We will circle back today with the signature as soon as we can.”
In an amendment to the master agreement, BYD had to refund $247 million to California of the $495 million down payment they had received apparently because they weren’t able to meet the deadline of receiving National Institute for Occupational Safety and Health (NIOSH) certification for their N95 masks. The certification deadline was extended from April 30, 2020, to May 31, 2020.
On March 28, 2020, Brian Stansbury, a member of the board of the San Francisco Employees’ Retirement System, emailed Grady Joseph of the CA Office of Emergency Services and Paul Teng of Himalaya Capital in order to introduce Joseph to Teng, saying, “Grady as we discussed the pension system for the City of San Francisco – the San Francisco Employees’ Retirement System (SFERS) – reached out to our investment partners to see how they can help in the fight against COVID-19.
Teng responded, offering to assist with the procurement of N95 masks: “Paul I would like to introduce Grady Joseph Assistant Director of Recovery Operations for Cal OES from the Governor’s Office of Emergency Services. We know Grady is in good hands and want to thank you for your partnership.”
Teng later responds, “Hi Grady, nice to meet you through email though I wish it was under better circumstances. We have a deep relationship with BYD which is now the largest mask maker in the world capable of producing 10MM masks a day. I have just facilitated an order between BYD [redacted] to procure 4 MM in N95 masks and 3 MM surgical masks that will be delivered over the next three weeks or so in batches. Happy to make the same connection as well. My number is below if you need to reach me.”
Brian Stansbury, a member of the board of San Francisco Employees Retirement System (SFERS), introduced Paul Teng of Himalaya Capital (with whom SFERS reportedly had invested $200 million and which Stansbury calls their “investment partners”), to Grady Joseph, Office of Emergency Services Asst. Director Of Recovery Operations to help in the procurement of face masks. Teng tells Joseph that Himalaya has a “deep relationship” with BYD, which he claims, “is now the largest mask maker in the world.” Oscar Su, a BYD executive introduced by Teng to Joseph and another Office of Emergency Services official, responds, “Thanks Paul for the introduction.”
According to the “Equipment Master Supply Purchase Order Agreement” effective April 7, 2020, BYD lists the “Seller” to the State of California as a Wilmington, DE-based company called Global Healthcare Product Solutions, LLC. The contract states that the “Buyer will support the Seller’s efforts to obtain the National Institute for Occupation Safety and Health (“NIOSH”) certification for the N95 masks purchased under this Agreement.” A provision of the contract calls for BYD Motors, a subsidiary of BYD Co, Ltd, to be the Guarantor of the contract, in the event the Seller breached the “Guaranteed Material Obligation” of the contract.
Pursuant to a “Sweatfree Code of Conduct” provision of the contract, the Seller guarantees that no material furnished to the Buyer “have been produced in whole or in part by sweatshop labor, forced labor, convict labor, indentured labor under penal sanction, abusive forms of child labor or exploitation of children in sweatshop labor…” In a “Nondiscrimination” clause of the contract, the Seller agrees to not “unlawfully discriminate” against any employee based on “ancestry” or “religious creed.” The provision also calls for the Seller to adhere to the “Fair Employment and Housing Act.”
California’s Office of Emergency Services had to provide a 50% down payment totaling $495 million (one-half of the total $990 million contract) under the payment terms of the contract.
According to a purchase order, Global Healthcare Product Solutions (the Seller) is a subsidiary of BYD International Development based in Los Angeles. BYD was to supply 300 million N95 masks at a unit price of $3.30 each.
In an April 3, 2020, email exchange between Bollinger and BYD’s counsel, Zhuang, Bollinger asks Zhuang why BYD is using a company called “Global Healthcare Product Solutions, LLC” as the “contracting entity” for the masks. She notes that “I understood this to be a contract directly with BYD North America.” Zhuang then responds, saying, “BYD’s contract manufacturing division started Global Healthcare Product Solutions earlier this year to sell healthcare products in the US … They picked the name because they wanted folks to recognize it as a business that sold healthcare products, not to be conflated with the EV [Electric Vehicle] / clean energy business.”
In the master agreement, under “Limits of Liability” section, the contract notes that “In no event shall Seller be liable for any consequential, special, incidental, indirect or punitive damages …” In the contract provision titled “Limits on Warranty,” the contract notes that Seller … makes no warranties or representations … as to the Equipment … provided for under this Agreement …” The contract contains a provision that “Seller warrants that no gratuities … were offered or given by the Seller, or any agent or representative of the Seller, to any officer or employee of the Buyer with a view toward securing the Agreement …”
California purchased a total of 300 million N95 masks from BYD for $990 million on April 7, 2020.
In an April 2, 2020, email, Trevor Houser of “Frontline Support” connects multiple BYD and the Office of Emergency Services representatives. Frontline Support shares the same address in Oakland, CA, as Rhodium Group, where Trevor Houser is listed as a partner. Rhodium describes itself as “an independent research provider” combining “economic data and policy insight to analyze global trends.”
In an April 24, 2020, email, Shige Honjo from “Frontline Support” provided advice/directives to BYD on quality control measures for the masks that were to be provided to the Office of Emergency Services, describing various metrics that BYD should supply to ensure that the masks being provided met certain standards. These metrics included, “Product cleanliness spec – number and size of particles allowed, blemish, etc.” and “Reliability specs – when does filtration become no good, how many times can the straps be stretched out, etc.”
The BYD representative in charge of handling shipments of the masks to the Office of Emergency Services is Sean Li, Procurement and Logistic Supervisor of BYD Coach and Bus LLC.
In an email on March 21, 2020, a California lobbyist named Mark Weideman sent Gov. Newsom’s Chief of Staff, Ann O’Leary, a copy of an article about BYD titled “A Chinese Electric Car Maker Backed by Warren Buffett Re-Tooled to Make Face Masks When Covid-19 Hit – Now It Says It’s the World’s Largest Mask Factory.” Weideman says in his email that BYD was willing to “donate” 50,000 masks to California, along with hand sanitizer, and asked if someone could “notify GGN” [presumably Governor Gavin Newsom] so they could “hopefully execute on BYD’s offer to help California, a place they and their unionized workforce call home for their North American operations.” Abby Browning of the Office of Emergency Services responds to Weideman, noting she’d been forwarded his email from O’Leary, and said, “I am happy to help you facilitate this donation.” Weideman replies to Browning, “Yes, address and receiving information would be great. I am copying Frank Girardot and Nancy Liu with BYD who can help coordinate logistics.”
In an April 24, 2020, email exchange among the Office of Emergency Services officials handling delivery of 3.4 million masks from BYD, CA Office of Emergency Services Dep. Director Mitchell Medigovich notes that “The physical count will be at the airport and upon movement into the warehouse for inventory and QC [quality control], we will notify receipt and if there are any deficiencies. We are only checking 1% due to volume.”
These documents show how a well-connected and controversial Chinese firm was able to get a leg up on a billion-dollar mask contract with California politicians.
Nasdaq Wants to Require Minority and Female Directors for Members
We filed a public comment with the Securities and Exchange Commission (SEC) in response to a proposed rule change requiring race and gender quotas on the boards of corporations listed on the Nasdaq exchange. The proposed rule would require a self-identifying female and a self-identifying member of certain listed racial backgrounds, or an explanation from the company as to why it does not have at least two directors on its board who self-identify as such.
In September 2020, we also filed a taxpayer lawsuit in the Superior Court of the State of California County of Los Angeles to prevent California from enforcing Assembly Bill 979 (AB 979), which requires that boards of directors of California-based, publicly held domestic or foreign corporations satisfy racial, ethnicity, sexual preference and transgender status quotas by the end of the 2021 calendar year (Robin Crest, et al. v. Alex Padilla, in his official capacity as Secretary of State of the State of California (No.20ST-CV-37513)).
In a related case, we are prosecuting a taxpayer lawsuit that challenges California’s gender quotas (Crest et al. v. Padilla, (No.19ST-CV-27561)). In June 2020, in a major development, the court held that Judicial Watch’s clients have standing to sue under state law and Judicial Watch attorneys are now in discovery.
In our comment to the Securities and Exchange Commission we explained that the proposed rule regulating Nasdaq corporations violates the equal protection component of the Fifth Amendment’s Due Process Clause: “At the heart of the Constitution’s guarantee of equal protection lies the simple command that the Government must treat citizens as individuals, not as simply components of a racial, religious, sexual or national class.”
Race and gender quotas are brazenly unconstitutional, and NASDAQ’s proposed rule must be rejected by the SEC. You can expect more litigation if this discriminatory proposal moves forward.”
Here is our comment to the SEC:
Dear Secretary Countryman:
Judicial Watch, Inc. is a non-partisan, not-for-profit, public interest organization headquartered in Washington, DC. Founded in 1994, Judicial Watch seeks to promote accountability, transparency and integrity in government, and fidelity to the rule of law. In furtherance of these goals, Judicial Watch files public comments and amicus curiae briefs on issues involving civil rights as well as prosecutes lawsuits on matters it believes are of public importance. Judicial Watch respectfully submits this comment in opposition to Nasdaq’s Proposed Rule Change to Adopt Listing Rules Related to Board Diversity. We urge the SEC to decline adopting the Proposed Rule because it violates the Fifth Amendment to the U.S. Constitution, requires companies listed on Nasdaq to discriminate, and will likely lead to extensive litigation. In addition, Judicial Watch is concerned about potential conflicts of interest related to the Proposed Rule as Nasdaq also has recently announced a partnership with Equilar to provide services to listed companies that have not met the Proposed Rule’s “diversity objectives.”
I. The Proposed Rule Violates the Fifth Amendment of the U.S. Constitution.
Although the Fifth Amendment, unlike the Fourteenth Amendment, does not have an express equal protection clause, the Supreme Court has held that “[t]he reach of the equal protection guarantee of the Fifth Amendment is coextensive with that of the Fourteenth.” United States v. Paradise, 480 U.S. 149, 166, n. 16 (1987) (plurality opinion); Adarand Constructors v. Pena, 515 U.S. 200, 217 (1995). Therefore, the Fifth Amendment forbids the federal government from: (1) creating racial classifications that are not narrowly tailored to serve a compelling government interest; and (2) creating gender classifications that are not substantially related to the achievement of important government objectives. See Adarand, 515 U.S. at 227; see also United States v. Virginia, 518 U.S. 515, 533 (1996).
The Proposed Rule violates the equal protection component of the Fifth Amendment’s Due Process Clause. “At the heart of the Constitution’s guarantee of equal protection lies the simple command that the Government must treat citizens as individuals, not as simply components of a racial, religious, sexual or national class.” Miller v. Johnson, 515 U.S. 900, 911 (1995) (quoting Metro Broadcasting v. FCC, 497 U.S. 547, 602 (1990) (O’Connor, J., dissenting) (internal quotation marks omitted)). The Proposed Rule, however, does just that. It would require:
Nasdaq-listed companies, subject to certain exceptions, (A) to have at least one director who self-identifies as a female, and (B) to have at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (C) to explain why the company does not have at least two directors on its board who self-identify in the categories listed above[.]
Contrary to the fundamental guarantee of equal protection under the law, the Proposed Rule’s requirement to have at least one director who self-identifies as a specific race is a racial quota that, if adopted as law, will violate the Fifth Amendment. All racial classifications, both disadvantaging and benefitting minorities, are subject to strict scrutiny. Adarand, 515 U.S. at 227. To survive strict scrutiny, the government must demonstrate that the racial classifications are narrowly tailored to further a compelling government interest. Id. “Diversity” itself is not a compelling interest. See Grutter v. Bollinger, 539 U.S. 306, 330 (2003); see also Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 729-731 (2007). Neither is “outright racial balancing,” which the Supreme Court deems “patently unconstitutional.” Grutter, 539 U.S. at 330.
What Nasdaq proposes is unlike any other racial classification approved by the Supreme Court. Cf. Grutter, 539 U.S., at 316, 335-336 (holding constitutional an affirmative action program that considered race as only one factor in achieving student body diversity and did not seek any particular number or percentage of minority students). Nasdaq justifies the Proposed Rule’s racial quota by relying on studies that purportedly show that racial diversity on boards discourages “groupthink” by increasing “cognitive diversity.” But this justification “embod[ies] stereotypes that treat individuals as the product of their race, evaluating their thoughts and efforts—their very worth as citizens—according to a criterion barred to the Government by history and the Constitution.” Miller v. Johnson, 515 U.S. 900, 912 (1995). This numerical set-aside amounts to just another form of unconstitutional racial balancing. See Parents Involved in Cmty. Sch., 551 U.S. at 732 (“Racial balancing is not transformed from ‘patently unconstitutional’ to a compelling state interest simply by relabeling it ‘racial diversity.’”).
Moreover, employing racial classifications for the sake of “cognitive diversity” and inclusion does not further a compelling government interest. “[T]he interest in diversity of viewpoints provides no legitimate, much less important, reason to employ race classifications apart from generalizations impermissibly equating race with thoughts and behavior.” Metro Broadcasting, 497 U.S. at 602 (O’Connor, J., dissenting) (emphasis in original); see also Lutheran Church-Missouri Synod v. FCC, 141 F.3d 344, 355 (D.C. Cir. 1998) (citing approvingly J. O’Connor’s dissent in Metro Broadcasting).
Additionally, “the [Supreme] Court has given every indication of wanting to cut back Metro Broadcasting,” where it found that diversity was only an “important” government interest. Lutheran Church-Missouri Synod, 141 F.3d at 354-355. The Supreme Court overruled Metro Broadcasting to the extent that it was inconsistent with its holding in Adarand that racial classifications at all government levels are subject to strict scrutiny review. 515 U.S. at 227. It is thus doubtful that the Supreme Court would now elevate “diversity” from an important to a compelling government interest. Moreover, a race-conscious program is not narrowly tailored if it uses a quota system, like the one proposed by Nasdaq. See Grutter, 539 U.S. at 334. Thus, this quota system will surely fail strict scrutiny review. Simply put, the diversity interest advanced by Nasdaq is insufficient under the law to justify the Proposed Rule’s racial quotas.
Further, the Proposed Rule’s requirement to have at least one director who self-identifies as a female is a gender quota that, like the racial quota, if adopted as law, will violate the Fifth Amendment. Gender classifications are constitutional only if the government can demonstrate “exceedingly persuasive justification” for the classification. Virginia, 518 U.S. at 531. To meet this burden, the government must show that the classification is substantially related to achieving an important governmental objective. Id. at 533.
Just like its justification for racial quotas, Nasdaq justifies the gender quotas by relying on studies that purportedly show that gender diversity on boards discourages “groupthink” by increasing “cognitive diversity.” For a gender classification to be constitutional, not only must the justification be “genuine, not hypothesized,” but it also “must not rely on overbroad generalizations about the different talents, capacities, or preferences of males and females.” Id. Yet, Nasdaq’s justification is, at its essence, exactly that – an assumption that women think so differently than men that it can affect the output of a board.
Moreover, the “comply-or-explain” framework does not save the Rule from its constitutionally fatal flaws. Nasdaq portrays its Proposed Rule as a choice rather than a mandate. However, this “choice” is unduly coercive. As explained below, the government cannot encourage or facilitate private discrimination. The Proposed Rule is designed to do just that, with or without the option to explain non-compliance. Although the Proposed Rule permits a listed company to explain in a public statement why it has failed to meet the racial and gender quotas, “the relevant question is not whether a [Rule] requires the use of such measures, but whether it authorizes or encourages them.” Bras v. California Public Utilities Commission, 59 F.3d 869, 875 (9th Cir. 1995). If adopted, the SEC would undoubtedly be authorizing and encouraging Nasdaq-listed companies to use racial and gender quotas.
This sort of government authorization and pressure to employ such quotas violates the Fifth Amendment. That is precisely what the D.C. Circuit Court of Appeals found in MD/DC/DE Broadcasters Ass’n v. FCC, 236 F.3d 13, 18 (D.C. Cir. 2001). There, the court found that although an FCC rule allowed broadcasters to select one of two options for “broad outreach” in recruiting efforts, one of the options was unconstitutional because “the rule [created] pressure to recruit women and minorities, which pressure ultimately [could] not withstand constitutional review.” Id. This “option,” the court explained, was instead a “government mandate for recruitment targeted at minorities [and females]” that constituted a “racial [and gender] classification” that subjects persons of different races to ‘unequal treatment.’” Id. at 20 (emphasis added). This was true even though the other option did not focus specifically on race or gender. Id. at 18-20. Similarly, the Proposed Rule’s “comply-or-explain” framework does not transform the Rule from being unconstitutional to being constitutional.
II. The Proposed Rule Requires Nasdaq Members Discriminate.
The Proposed Rule, if adopted, will inevitably require listed companies to discriminate on the basis of race and sex when selecting board members, in violation of the Constitution: “A ‘law compelling persons to discriminate against other persons because of race’ is a ‘palpable violation of the [Fifth] Amendment,’ regardless of whether the persons required to discriminate would have acted the same way regardless of the law.” Monterey Mech. Co. v. Wilson, 125 F.3d 702, 707 (9th Cir. 1997) (quoting Peterson v. City of Greenville, 373 U.S. 244, 248 (1963)). This requirement to discriminate puts skin color and gender ahead of merit.
As Warren Buffet explained in a letter to Berkshire Hathaway shareholders, “At Berkshire, we are in the specialized activity of running a business well, and therefore we seek business judgment.” Requiring Nasdaq members to focus more on race and gender takes away from the focus on merit. To put it bluntly, as Warren Buffet did when discussing such requirements, the Proposed Rule “sounds as if the mission is to stock Noah’s ark.” Under this Rule, the question won’t be “Who has the best business judgment?” Instead, it will be “What are the racial and gender checkboxes that we need to fill?” The SEC should not be in the business of condoning and mandating such discriminatory decision-making.
III. The Proposed Rule Amounts to Government Action.
For an action to violate the Fifth Amendment, the government must act. Discrimination on the basis of race or sex violates the Constitution “only when it may be attributed to [government] action.” Edmonson v. Leesville Concrete Co., 500 U.S. 614, 619, 111 S. Ct. 2077, 2082 (1991) (citation omitted). Here, the Rule would constitute government action on the part of the SEC for purposes of establishing an equal protection claim. See Blount v. SEC, 61 F.3d 938, 941 (D.C. Cir. 1995).
The Proposed Rule only takes effect if the SEC approves it. Under the Securities Exchange Act, the SEC is a governmental body charged with ensuring that every self-regulatory organization (“SRO”), such as Nasdaq, complies with the provisions of the Act, the SEC’s own rules and regulations, and the SRO’s own rules. See generally 15 U.S.C. § 78s. Nasdaq’s proposed rules cannot “take effect unless approved by the Commission.” Id. at §78s(b)(1). Once the SEC approves a proposed rule, it, in effect, becomes binding federal law. The rule then “may be enforced by such organization to the extent it is not inconsistent with the provisions of [the Exchange Act], the rules and regulations thereunder, and applicable Federal and State law.” Id. at § 78s(b)(3)(C).
As has been the case in other actions maintained against the SEC, a court is likely to find that that the proposed rule, if adopted, constitutes government action. In Blount, the D.C. Circuit Court of Appeals rejected the argument of defendant-intervenor, a self-regulatory organization, that a challenged rule was not the product of government action. Blount, 61 F.3d at 941. And in New York Republican State Comm. v. SEC, government action was not an issue that barred the court from hearing a claim challenging the constitutionality of FINRA’s proposed rule that was adopted by the SEC. 927 F.3d 499, 503 (D.C. Cir. 2019).
Further, the SEC, as a federal governmental agency, is forbidden from encouraging and facilitating discrimination on the basis of race and sex. The U.S. Supreme Court has recognized that “the impetus for the forbidden discrimination need not originate with the State if it is state action that enforces privately originated discrimination.” Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 172 (1972) (citing Shelley v. Kraemer, 334 U.S. 1 (1948). As the Court announced in Reitman v. Mulkey, the government may not authorize or encourage private discrimination. 387 U.S. 369, 375-76 (1967). In that case, the Court found that an amendment to the California Constitution amounted to government authorization of private discrimination in the housing market. This was enough for the Court to find state action, such that the government was encouraging and facilitating private discrimination in violation of the Fourteenth Amendment. Id.
In short, if the SEC adopts the Proposed Rule, it will amount to government action facilitating and encouraging private discrimination on the basis of race and sex, in violation of the Fifth Amendment. There is no doubt that litigation will commence shortly after the Proposed Rule goes into effect.
The Proposed Rule is repugnant to the Constitution’s guarantee of equal protection under the law. Because it runs afoul to the Fifth Amendment, Judicial Watch urges the SEC to reject this flagrantly unconstitutional Rule.
Thomas J. Fitton
President, Judicial Watch, Inc.
To read the full comment letter with footnotes, click here
Until next week …
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