JEFFERSON CITY — A federal judge Wednesday struck down a controversial set of investing regulations pushed by Missouri Secretary of State Jay Ashcroft.
U.S. District Judge Stephen Bough agreed with the that the rules were “unconstitutionally vague” and threatened to do “irreparable harm” to financial advisers operating within Missouri.
“(SIFMA) has shown a violation of its constitutional rights, and that those violations would be suffered by others in the future,” the judge’s 23-page order read. “Because the constitutional violations in this case are not based on unique facts or circumstances, a statewide permanent injunction is warranted.”
The industry group filed suit last year as Ashcroft began his unsuccessful run for governor. As part of a Republican-led fight against “woke” investing, the secretary attempted to limit the impact of environmental, social and governance factors in investment decisions.
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The trade organization said in its lawsuit the regulations violate the constitutional right to free speech by requiring brokers to stick to a script.
And the group said the rule fails to acknowledge that federal law already requires financial advisers to act in the best interest of their clients when providing personalized investment advice.
Although attorneys for Ashcroft argued that the rule was not controversial, Bough cited a July 2023 article in which Ashcroft said he was initiating the rule to fight back against “so-called ‘ethical investing’ movement being pushed by progressives, activist shareholders, and proxy voters, driving investments toward liberal priorities that are in conflict with investors’ interests.”
“These statements discussing political priorities are not uncontroversial and may be considered in determining the appropriate level of scrutiny to be applied,” Bough wrote.
The judge wrote that rather than imposing an unconstitutional regulation on an already tightly regulated industry, Ashcroft could have instead embarked on a “public information campaign” to advance his message.
Bough also sided with the industry group over the alleged vagueness of the rules, saying the wording was “particularly troublesome given the penalties for failure to comply.”
A violation under the regulation could have been punished with a civil penalty of up to $25,000 for each violation, as well as possible criminal penalties.
Ashcroft said he is mulling an appeal, saying he is attempting to protect consumers.
“The court’s decision was not just legally deficient but also morally wrong and puts Missouri investors at risk. The secretary of state’s office will neither abandon its statutory duty to regulate securities nor allow Missouri investors to be preyed upon by investment individuals that are afraid to be upfront and honest about their investment advice,” he said in a statement.
After leading in the polls for much of the race, Ashcroft finished third in the Republican primary for governor last week and will leave office in January.
He earlier blamed lackluster fundraising for his loss.
Earlier this year, Ashcroft was put on the hot seat for requesting more than $1 million to pay for a politically connected private law firm to handle the case. He hired the Kansas City-based Graves Garrett law firm on a no-bid contract after Attorney General Andrew Bailey’s office said it would need to have complete control over the case.
State payroll records show the politically connected firm has been paid more than $875,000 since taking the case.