New restrictions on enforcement actions at the SEC appear designed to make a very definitive change in an agency that set records for fiscal penalties and drew wide criticism for regulation by enforcement under the previous administration.
Attorneys in the SEC’s Enforcement Division – which reiterated Jan. 17 the record number of FY2024 enforcement actions and fiscal penalties it first announced in November – are now required to get approval from the Republican-dominated Commission before launching formal investigations into violations of security law or financial malfeasance, according to a Feb. 3 Reuters report.
SEC officials in the Enforcement Division are still able to conduct informal investigations, but are unable to issue subpoenas that could compel companies to provide testimony or documents without approval by SEC commissioners, according to Reuters, which attributed the information to anonymous sources close to the situation, but was unable to determine whether the orders came from higher-ups in the SEC or from the Trump administration.
Members of the commission could always deny or revoke permission for such investigations, but rarely overrode the judgement of senior-level staff who presented the investigations for approval.
Supervising attorneys working for the Enforcement Division chief were able to make such decisions under the administration of former SEC chair Gary Gensler, according to Reuters. Under first-Trump-administration SEC chair Jay Clayton formal investigations required the approval of both Enforcement-Division directors.
Steven Peikin – who served as co-director of Enforcement under Clayton – told Reuters that forcing such decisions to rise all the way to the top of the SEC hierarchy might be a “huge waste of commission resources,” but also said it could indicate an effort by commissioners to exert more control over the agency’s enforcement efforts, but might not result in significantly fewer investigations.
The Trump administration has announced crackdown on regulations that includes a requirement that agency heads submit lists of recently approved regulations for review by Trump administration staffers, but neither White House nor SEC sources have confirmed the report.
Even without any influence from the outside, the SEC’s remaining members have made clear they are not interested in the high-octane enforcement priorities of the Gensler era – efforts the agency pushed right up to the end of the Gensler and Biden administrations.
Even after three years of intense opposition to its regulatory and enforcement efforts, and a pending loss in the U.S. presidential election, the SEC set a record for the number of enforcement actions filed during a single quarter with 200 total enforcement actions filed during the first fiscal quarter of 2025, which began in October.
The record number shows “the Division has not taken its foot off the pedal in the new fiscal year” Sanjay Wadhwa, acting director of the Division of Enforcement said in the Jan. 17 announcement.
The total cost in penalties and disgorgements won’t be counted until the end of the fiscal year, but are not expected to match anywhere near the pace of fiscal 2024, during which the number of enforcement actions dropped compared to the previous year, but financial remedies reached $8.2bln, the highest in SEC history.
Of that total, however, approximately 56% is attributable to a single jury trial win against Terraform Labs and its CEO Do Kwon, whose conviction for securities fraud is one of the largest in U.S. history, according to the SEC’s Nov. 22 announcement of FY2024 enforcement results.
Change of personnel, change of policy
The five-person SEC commission has undergone some pretty drastic changes following the election, however.
Republican commissioner Mark Uyeda took over as acting chair of the agency Jan. 21 following the resignation of former SEC chair Gary Gensler – who spent the previous three years under almost constant fire from both regulated companies and Congress for what opponents called a policy of over-aggressive regulation and enforcement – resigned from the SEC at noon Jan. 20 at exactly the same time Donald Trump’s second presidential inauguration was scheduled.
Fellow Democratic commissioner Jaime Lizárraga resigned his post as of Jan. 17; the reappointment of the only remaining Biden-era Democratic commissioner, Carolyn Crenshaw, failed in the Senate following the election. She will continue to serve on the now three-person commission until a replacement is named, presumably following the confirmation of Paul Atkins, who was nominated by the White House as the next SEC chair but has not yet been confirmed.
Hester Peirce, the longer-serving of two Republican members of the Commission not only remains on the commission, and has just been appointed head of the Crypto Task Force that is currently the agency’s highest-profile effort at change.
Changes at the top represent a complete turnover of what critics described as the intensely pro-regulation, pro-enforcement priorities of Gary Gensler during the Biden administration, but personnel changes further down in the SEC hierarchy are likely to reinforce the change.
Gurbir S. Grewal, a former prosecutor who took much of the blame for aggressive enforcement during his term as director of the SEC Enforcement Division resigned in October to go into private practice.
His deputy, Sanjay Wadhwa, who took over as acting director following Grewal’s departure, resigned Jan. 17.
Trading and Markets division director Haoxiang Zhu and Corporation Finance Division Director Erik Gerding – both of whom were criticized for playing key roles in developing the SEC’s aggressive regulatory agenda, both resigned in mid-December.
SEC chief economist Jessica Wachter resigned Jan. 15, followed a day later by general counsel Megan Barbero and director of international affairs YJ Fisher.
Gensler’s chief of staff Amanda Fisher left three days before her boss, along with public affairs chief Scott Schneider.
Widespread turnover is common during a change of administrations but is likely to be particularly intense during a changeover from administrations with such adamantly opposite policies, according to former SEC officials and fund-board-advising attorneys who largely described the changes as an opportunity for a more balanced negotiating relationship with new- or newly promoted SEC staffers.
The changes, especially at the top, are likely to create major changes in the way the SEC relates to the companies it is responsible for regulating, but is unlikely to result in the kind of hands-off relationship some industry sources quoted in the press seem to expect, according to Carolyn McPhillips, president of the Mutual Fund Directors Forum (MFDF).
The mutual-fund industry in particular is too restricted by investor protection regulations to allow the kind of drastic changes that might be possible in less-regulated areas, she said.
