SEC Commissioners Piwowar and Gallagher dissented from a recent Commission Opinion sanctioning an investment adviser’s use of misleading historical data purporting to validate an asset-allocation model. Agreeing there was a violation, Piwowar and Gallagher nevertheless dissented, criticizing “rulemaking by opinion:”

Instead, the majority opinion creates from whole cloth specific requirements for advertisements that include the word “backtest.” Despite the lack of any statutory or regulatory definition of what constitutes a “backtest,” the majority opinion finds it fraudulent or deceptive practice if a backtest fails to use actual historical rates — even if the slideshow presentation specifically discloses the use of assumed rates for certain components.

The Respondents’ Appointments-Clause challenge to the administrative forum raised “important issues,” wrote the two Commissioners. “Even though the Commission is free to express its views on Constitutional issues, we recognize and believe it is appropriate that Article III federal judges ultimately resolve this issue.” A footnote cited the Duka and Hill decisions – two among the few to preliminarily enjoin SEC administrative actions as “likely unconstitutional.” The majority opinion rejected Lucia’s constitutional arguments.

Curiously, Piwowar and Gallagher did not dissent from a similar holding also rejecting an Appointments Clause challenge in Timbervest, IA Rel. No. 4197, AP File No. 3-15519 (Sept. 17, 2015) issued two weeks after Lucia but two weeks before their October 2 dissent.

The Opinion is In the Matter of Raymond J. Lucia Cos, Inc., ’34 Act Rel. No. 75837, AP File No. 3-15006 (Sept. 3, 2015) and the dissent is here.