JEFFERSON CITY, Missouri — A federal judge has invalidated Missouri’s investment rules, which Republican Secretary of State Jay Ashcroft touted as a way to expose financial institutions that put “woke politics ahead of investment returns.”
The Missouri regulations, issued by Ashcroft’s office, violate the free speech rights of investment professionals and are undermined by federal law, the court ruling said.
The state’s top business association hailed the ruling on Friday as a triumph for free enterprise.
The regulations “would have placed an unnecessary burden on investment firms – small and large – doing business here in Missouri,” said Kara Corches, interim president and CEO of the Missouri Chamber of Commerce and Industry.
Ashcroft, whose office enforces state securities laws, issued rules in 2023 requiring investment professionals to obtain written consent from clients before including “a social purpose or other nonfinancial purpose” in decisions about buying and selling securities.
Ashcroft said he wanted to make people aware that investment firms follow environmental, social and governance principles.
When Ashcroft subsequently announced his candidacy for governor in April 2023, he touted his efforts to require banks and financial advisors to “disclose to their clients when they are making ESG investments that prioritize woke politics over investment returns.”
Ashcroft finished third in the Republican primary for governor on August 6.
The rule was challenged in court by the Securities Industry and Financial Markets Association, a trade association for stockbrokers, investment banks and asset managers.
In a court order Wednesday, U.S. District Judge Stephen R. Bough said the Missouri rule superseded federal laws regulating investment brokers and was unconstitutionally vague. He also said the rule violated investment advisers’ First Amendment rights.
If the goal was to prevent fraud and deception, the rule could have been more narrowly tailored, Bough said. Ashcroft could also have had a policy debate about social investing without publishing an official rule, Bough said.
Ashcroft said his office is exploring options for an appeal.
“The court’s decision was not only legally flawed, but also morally wrong and puts Missouri investors at risk,” Ashcroft said in a statement.
The securities industry is calling the court’s ruling a major victory.
Under federal law, “financial professionals are already required to provide investment advice and recommendations that are in the best interests of their clients,” SIFMA President and CEO Kenneth E. Bentsen Jr. said in a statement. “So the Missouri rules were unnecessary and confusing.”