The Securities and Exchange Commission (SEC) is facing a number of legal challenges to some rules passed since Gary Gensler became its chair in 2021, The Wall Street Journal reported.

A group of hedge funds sued the SEC this week to overturn recent rules requiring more disclosures around short selling and securities lending. In adopting the rules, Gensler said short selling and securities lending were “two opaque areas of the market” that would benefit from greater transparency. One of the hedge fund groups, the Managed Funds Association, said the measures would discourage short selling. 

“The newly adopted rules create inconsistent and burdensome reporting regimes that will increase the frequency and detail of disclosure, … allowing market participants to imitate or trade against the underlying position holder,” the group said in a press release announcing the lawsuit. “In effect the rules will discourage short selling.”

The suit was filed in the U.S. Court of Appeals for the Fifth Circuit. (A special statute allows court of appeals, rather than the lower district courts, to directly review final SEC decisions.)

A different case, filed in the same appeals court, seeks to overturn another rule aimed at getting investors more information about public companies’ share repurchases. The three-judge panel agreed with a coalition of business groups that the SEC failed to adequately explain the costs and benefits of a rule that would augment corporate disclosures around share repurchases, according to the Journal. On Dec. 1, the SEC said that it couldn’t meet a 30-day deadline to address those shortcomings, meaning the buyback rule will likely die or have to be reworked.

If that happens, it would be Gensler’s first major loss on a policy initiative, according to the Journal.

Advocates for the rule have urged the SEC to propose it again. They say companies use share repurchases as a backdoor way to boost executive compensation, which is often linked to stock performance.

“While the courts have gotten more hostile towards the SEC, ultimately the buybacks rule suffered from inept economic analysis,” Robert Jackson Jr., a former Democratic SEC commissioner, told the Journal.

Gensler said after the court decision that he was disappointed, but he framed it as a narrow decision that wouldn't necessarily force the SEC to change course.

Two additional rules related to private-fund regulation and proxy-voting advice have also been challenged in lawsuits.

“We will vigorously defend challenged rules in court,” an SEC spokeswoman said.