## Facts

- Chenery Corporation’s management (officers, directors, and controlling shareholders) controlled a registered public-utility holding company undergoing reorganization under the Public Utility Holding Company Act of 1935.
- While successive reorganization plans were pending before the Securities and Exchange Commission (SEC), the insiders bought substantial amounts of the company’s preferred stock on the open market to increase their holdings.
- The SEC approved a reorganization plan only if the insiders’ newly purchased preferred stock would not convert on the same terms as other preferred shares; instead, that stock had to be surrendered at cost plus interest, preventing insiders from capturing any reorganization premium.
- The SEC did not find fraud, concealment, or that the insiders exploited the corporation, other stockholders, or the public.
- In an earlier judicial review, the Supreme Court remanded because the SEC’s first order relied on an inadequate stated rationale; on remand, the SEC issued a new order reaching the same result but grounded in the statute’s standards rather than preexisting equitable doctrines.
- The court of appeals again set aside the SEC’s order, and the Supreme Court granted review.

## Issues

1. Whether, after remand for inadequate reasoning, the SEC could reach the same result by articulating a new, statute-based rationale supported by the administrative record.
2. Whether the SEC could announce and apply a new standard through adjudication, rather than through prior rulemaking, even if the decision had some retroactive effect.

## Decision

- The Supreme Court reversed the court of appeals and sustained the SEC’s order.
- The Court held that the prior remand addressed only the insufficiency of the SEC’s earlier stated rationale and did not bar the agency from reaching the same result on proper statutory grounds.
- The Court upheld the SEC’s interpretation of the Act to disallow insiders from profiting from purchases made while reorganization proceedings were pending as a condition of approving the plan.
- The Court held the SEC was not required to proceed by rulemaking; the agency could develop and apply policy through adjudication.
- The Court held that some retroactive effect in agency adjudication does not by itself invalidate the decision when it is authorized by statute and supported by substantial evidence.

## Legal Principles

- A reviewing court evaluates administrative action based on the grounds the agency actually invoked; an order cannot be affirmed on alternative rationales supplied after the fact.
- An agency may, on remand, issue a new decision supported by proper and relevant legal grounds and adequate explanation, even if it reaches the same substantive outcome.
- Agencies generally have discretion to choose between rulemaking and adjudication when making policy, absent statutory constraints.
- Policy announced in adjudication may be applied to the parties before the agency and may have limited retroactive effect if consistent with statutory purpose, supported by substantial evidence, and not otherwise unlawful.
- Once agency action is shown to be within congressional authorization and supported by substantial evidence, the court’s role is limited and does not extend to reweighing the agency’s policy choice.

## Conclusion

The Court upheld the SEC’s statute-based restriction on insiders’ reorganization-related stock profits and confirmed two central administrative-law rules: courts may uphold agency action only on the agency’s stated reasons, and agencies may make new policy through adjudication, even with some retroactive impact, when the decision is lawful and supported by the record.


SEC v. Chenery Corp., 332 U.S. 194 (1947)