United States: Second Circuit Applies Loper Bright to Reject Reliance on SEC Definition of Investment Adviser in Enforcement Action

By: Thoreau A. Bartmann, Theodore L. Kornobis, and Varu Chilakamarri

The SEC has long taken the position that the “expectation” of receiving profits can satisfy the “receipt of compensation” element needed to be an investment adviser. In an important new summary order, and one of the first applying Loper Bright to the SEC, the Second Circuit vacated Advisers Act liability after concluding that courts must independently construe the statutory definition of “investment adviser” rather than defer to the SEC’s interpretation. The decision has potential implications whenever the SEC relies on its own interpretations of the securities laws in enforcement proceedings.

Background

The SEC alleged that the defendant made materially false and misleading statements to clients about investment performance. The SEC obtained summary judgment on all claims. On appeal, the Second Circuit focused on whether the district court properly determined that the defendant qualified as an investment adviser. The defendant received no direct compensation from the allegedly defrauded investors, but the SEC argued that his expectation of future compensation—and compensation received from other investors—was sufficient under the SEC’s longstanding interpretations, including from a rulemaking preamble.

Loper Bright Requires Independent Judicial Judgment

The Second Circuit noted the absence of judicial precedent interpreting the statutory definition of investment adviser. Citing Loper Bright, the court emphasized that judges “may not defer to an agency interpretation of the law simply because a statute is ambiguous” and instead must exercise independent judgment. SEC v. Amah, No. 24‑2206, 2026 WL 504794 (2d Cir. 2026) (summary order). Because the district court appeared to treat the SEC’s interpretation as authoritative without assessing its correctness, the panel vacated the Advisers Act liability and remanded for proper statutory analysis.

Implications for SEC Enforcement

The decision is among the first to apply Loper Bright as a defense in an SEC enforcement action involving an ambiguous statute. It signals that the SEC must be prepared to ground its interpretations more firmly in statutory text and provides defendants with an avenue to challenge even long‑standing agency positions. While the SEC may still be entitled to some degree of Skidmore respect on remand, the case underscores Loper Bright’s significance in enforcement proceedings.