SEC v. Chenery Corp.

318 U.S. 80, 63 S. Ct. 454 (1943)



The grounds upon which an administrative order must be judged are those upon which the record discloses that its action was based. 


By an order of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, approval was given, over objections by the respondents, to a plan for the reorganization of a registered holding company, whereby preferred stock which had been acquired by officers and directors of the company while plans for its reorganization were before the Commission, would not be converted into stock of the reorganized company, as would all other preferred stock, but would be surrendered at cost plus interest. The Commission explicitly based its order on its view of principles of equity judicially established. However, the Commission did not find, but on the contrary disavowed, that the specific transactions showed misuse by the officers and director of their position as reorganization managers, or that as such managers they took advantage of the corporation, other stockholders, or the investing public. The Commission approved the amended reorganization plan but this was set aside by the appellate court.


Is the order of the Commission valid?




The court remanded the action for further proceedings. The Commission’s order could not be upheld, because it was not supported by judicial principles. Neither Congress nor the courts proscribed respondents' purchase of preferred stock. The Court could not uphold the action under commission’s power under the Act, because the commission did not rely upon those powers when it made its determination that respondents' stock could not be treated on equal footing with the other preferred stock.

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