A new petition has been filed challenging the Nasdaq board diversity rule (see this PubCo post). The National Center for Public Policy Research filed the petition on Tuesday with the U.S. Court of Appeals for the Third Circuit, but asked the court to transfer the proceeding to the Fifth Circuit, where an earlier petition filed by the Alliance for Fair Board Recruitment is pending. (See this PubCo post.) The new Nasdaq listing rules, which were approved by the SEC on August 6, adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards.

According to a press release from the New Civil Liberties Alliance, which is representing the NCPPR on this matter, the NCPPR “owns shares in many Nasdaq companies,” and “argues that SEC has no power to regulate in this field because the rules have nothing to do with fraud or honest markets. The diversity rules fall outside of SEC’s regulatory authority under the 1934 Securities and Exchange Act [sic], which empowered SEC to regulate securities to ensure honest markets and enforce federal laws that punish fraud. These longstanding laws are being misinterpreted today by SEC to allow the agency, working with Nasdaq, to impose a ‘meet quota, explain why, or get delisted’ regime.”  Further, the NCLA contended, “Congress has not and cannot divest its lawmaking power to an administrative agency working with a quasi-public exchange to govern how boards of directors are constituted. These rules plainly violate the due process and equal protection rights of Americans. The rules further compel speech, in violation of the First Amendment, give SEC suspending and dispensing powers, and constitute prerogative warrants and orders in violation of the U.S. Constitution. Additionally, SEC should not be given Chevron or any other kind of deference in interpreting its own regulatory authority.”

Posted by Cydney Posner