The SEC’s Enforcement Program Under President Trump’s Second Administration: What Can We Expect?
Al Tierney, a partner in Stradling’s SEC enforcement practice, recently authored the article, “The SEC’s Enforcement Program Under President Trump’s Second Administration: What Can We Expect” for the OC Lawyer. With Paul Atkins’ recent swearing-in as Chairman of the U.S. Securities and Exchange Commission (“Commission”), and in light of the Commission’s recent unprecedented and unexpected actions under former Acting Chairman Mark T. Uyeda, many in the securities industry remain uncertain as to what to expect from an the Commission during President Trump’s second term.
As a former Senior Counsel in the Commission’s Division of Enforcement (“Enforcement”) during three prior administrations, Al has personally experienced how a change in administration can impact Enforcement. As noted in the article, the Commission’s recent actions and Chairman Atkins’ publicly expressed views concerning the Enforcement suggest fundamental changes to the Enforcement program that go beyond a mere course correction.
Shifting Policy Away from Regulation by Enforcement: The Commission will move away from “regulation by enforcement,” and instead relying on rulemaking and guidance to message the securities industry, particularly where existing guidance is unclear or untested.
A Focus on Main Street and Investor Harm. Expect Enforcement to focus its resources on investigating potential violations of clearly established and defined rules and statutes, and to pursue matters where there is a direct nexus to investor harm.
Changes to Enforcement’s Structure, Autonomy, and Footprint. During the past few months, we’ve seen unprecedented changes to the Enforcement program, including reported plans to eliminate of the Regional Director positions (which have been in place since the 1930s), communicating that office leases would be terminated in the Los Angeles, Philadelphia, and Chicago regions, and reinstating Commission approval for formal orders of investigation. (Additionally, since the article’s publication, there are reports that Enforcement will reorganize its senior management by establishing three deputy directors overseeing three geographic regions—West, Northeast, and Southeast.)
Cryptocurrencies: The Commission has already shifted in its approach to cryptocurrencies, including retreating from existing litigation and investigations eliminating, the “crypto” element of Enforcement’s formerly named Crypto and Cyber Unit, and the establishing a new Crypto Task Force, led by Commissioner Hester Peirce. Expect Atkins’ Commission to continue curbing crypto enforcement, while still vigorously pursuing patently fraudulent conduct in the cyro space, particularly where there is investor harm.
Cybersecurity: Atkins’ Enforcement program will likely take a different approach to cybersecurity incidents, including treating companies subject to cyberattacks as victims rather than violators, but still pursuing clear cybersecurity-related misconduct, particularly where there is investor harm.
Climate-Related Disclosures: Atkins’ Commission will likely retool its approach to ESG and climate-related disclosures. Under former Acting Chairman Uyeda, the Commission halted its legal defense of climate-related disclosure rules (which were being challenged in the Eighth Circuit). For his part, Atkins has publicly criticized climate-related disclosure rules, arguing they should be rescinded or modified. the extent Enforcement pursues investigations concerning climate-related disclosures, they will likely do so as material disclosures under existing disclosure obligations.
Corporate Sanctions and Penalties: Atkins’ Enforcement program will curb the use of corporate penalties against public companies. Atkins has been a long-time skeptic of large penalties against public companies, arguing that shareholders should not have to foot the bill for a public company’s misconduct when the shareholders themselves were victims. Expect corporate penalties to be applied more narrowly (e.g., where there is shareholder benefit to the detriment of the market or other companies). Additionally, Enforcement will likely increase its focus on individual accountability of corporate officers and executives to deter fraudulent conduct.
Read the full article: OC Lawyer: What Can We Expect
