The hedge fund of Justice Samuel Alito’s billionaire benefactor has been using a recent Alito-backed Supreme Court ruling to try to pressure federal regulators to back off new financial rules designed to fight fraud, according to documents reviewed by The Lever.
The hedge fund, Elliott Management, has been arguing that the rules are unconstitutional, and could ultimately try to bring a case before Alito to strike down the new regulations if they are enacted. The high court is currently considering a petition to hear a separate case involving the same firm.
ProPublica this week reported that Elliott Management founder, president, and co-CEO Paul Singer provided an undisclosed private jet flight to Alito, and has been a major donor to the Judicial Crisis Network, a dark money group that has funded campaigns to install conservative judges throughout the judiciary — including Alito. The justice has declined to recuse himself in past cases involving the hedge fund.
Elliott’s efforts to weaponize a recent Supreme Court case to block anti-fraud rules — and to potentially use the high court to kill them — spotlights how judges are in key positions to help billionaires who provide them with gifts and other largesse.
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At issue is a Securities and Exchange Commission (SEC) proposal that would require investors to more quickly disclose when they acquire a major stake in a company. A faster disclosure timeline threatens the business model of firms like Elliott Management, which acquire stakes in companies, demand changes, and then profit when their position becomes public and the company’s stock price jumps.
“The 2008 crisis had many chapters, but a form of security-based swaps — credit default swaps — played a lead role throughout the story,” said SEC Chair Gary Gensler when he announced the rules in December 2021, also pointing to the role of these swaps in the recent collapse of Archegos Capital Management. “As part of the Dodd-Frank Act of 2010, Congress granted this agency broad authority with regard to security-based swaps, including three important authorities we’re acting upon here today.”
Elliott has been at the forefront of the financial industry’s aggressive campaign to block the rule, submitting comment letters to the SEC and meeting with agency officials.
“This would pose an existential threat to the activist investor’s business model,” Elliott Management’s lawyer said to an SEC advisory committee about the proposal.
The firm has also cited the Supreme Court’s recent landmark 6-3 West Virginia v. EPA decision, which Alito supported, and which a Singer-led think tank has cheered. Singer’s executives and lawyers have insisted that the rule would be an illegal exercise of SEC authority under that ruling, which restricts the power of agencies to interpret laws.
“Although the comment periods for those proposals have closed,” Elliott Management wrote in an August 2022 letter, “the West Virginia decision postdates the comment periods in both instances and merits the commission’s careful attention given its effect on ‘all corners of the administrative state… West Virginia thus amplifies the concerns expressed in our previously submitted comment letters and further underscores the need for the commission to abandon these misguided Proposals.”
Elliott Management’s law firm, Ropes & Gray, as well as Elliott-linked lobby groups also sent separate letters to SEC regulators demanding they halt the rule.
Elliott Management did not respond to a request for comment.
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In early June, the SEC finalized part of the proposed anti-fraud rule, but just reopened the public comment period for the disclosure rule that Elliott was fighting.
Nonetheless, the SEC’s proposed rules set up a potential court battle between the agency and Elliott, which could ultimately be decided in part by Singer’s Alaska fishing partner, Alito.
Last year, the Financial Times reported that the hedge funds and industry groups fighting the rule — including Elliott Management — were “laying the groundwork for litigation” in the case that the proposed rules were finalized.
Right now, the high court is considering a separate petition to take a case involving the bankruptcy of the Elliott Management-backed firm Windstream Holdings. Elliott has filed a brief asking the court not to take the case. Alito has not said whether he will recuse himself.
Revelations about the financial relationship and legal interplay between Singer and Alito come weeks after similar revelations about Justice Clarence Thomas accepting undisclosed gifts from billionaire Harlan Crow before Thomas changed positions on a landmark legal doctrine and supported rulings that benefit Crow’s real estate investment firm.
