Federal court strikes down Missouri investment rule targeted at `woke politics’

JEFFERSON CITY, Mo. — A federal judge has struck down Missouri investment regulations that Republican Secretary of State Jay Ashcroft had touted as way to expose financial institutions that “put woke politics ahead of investment returns.”

The Missouri regulations, issued by Ashcroft’s office, infringed on the free speech rights of investment professionals and are preempted by federal law, the court ruling said.

The state’s most prominent business group on Friday praised the ruling 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 get written consent from customers before incorporating “a social objective or other nonfinancial objective” into decisions about buying and selling securities.

Ashcroft said he wanted to make people aware of investment firms using environmental, social and governance principals.

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 make ESG investments that put woke politics ahead of investment returns.”

Ashcroft finished third in the Aug. 6 Republican gubernatorial primary.

The rule was challenged in court by the Securities Industry and Financial Markets Association, a trade group for broker-dealers, investment banks and asset managers.

In a court order Wednesday, U.S. District Judge Stephen R. Bough said the Missouri rule was preempted by federal laws governing investment brokers and was unconstitutionally vague. He also said the rule violated the First Amendment rights of investment advisors.

If the goal was to prevent fraud and deceit, the rule could have been more narrowly tailored, Bough said. Ashcroft also could have engaged in a policy debate about social investing without publishing an official rule, Bough said.

Ashcroft said his office is reviewing options for an appeal.

“The Court’s decision was not just legally deficient but also morally wrong and puts Missouri investors at risk,” Ashcroft said in a statement.

The securities industry described the court ruling as a major victory.

Under federal law, “financial professionals are already required to provide investment advice and recommendations that are in their customers’ best interest,” SIFMA President and CEO Kenneth E. Bentsen Jr. said in a statement. “The Missouri rules were thus unnecessary and created confusion.”