It’s too early to tell what impact new SEC enforcement chief Margaret “Meg” Ryan will have on the SEC’s approach to lawbreakers, but a combination of light-touch policies and short-staffing have already made the agency’s enforcement less active than its predecessors.
Buyouts and layoffs early in the year cut total headcount approximately 15%, SEC chair Paul Atkins said during an SEC town-hall meeting May 6.
Cutbacks involving senior-level officials that increased confusion within the agency early in the year will become even more severe during the next few months, according to a Sept. 2 Reuters report.
The SEC is planning to offer supervisors financial incentives to leave the agency or take demotions, according to the Reuters report, which cited as its sources an internal memo and an email from the agency’s COO saying the SEC would provide “supervisor-graded employees with voluntary options” to leave their jobs.
It has become obvious among fund directors that the SEC is taking a lighter approach toward enforcement than during previous administrations, but the impact of staff cuts has not been that obvious to most organizations, MFDF president Carolyn McPhillips told Fund Directions.
“They do seem to be focusing more on things like fraud though, which is good,” she said. “It’s hard to argue with enforcement of fundamental laws.”
Staff cuts have had a significant impact on enforcement already, however, according to an Aug. 21 analysis from law firm King & Spalding.
The law firm counted 67 enforcement actions from the SEC between February and July of this year. That’s a 47% drop compared to the 127 the agency put up during the same period during 2024, and a drop of 66% compared to the 198 enforcement actions during the same period in 2021.
SEC investigations go on for as long as two or three years, which reduces the short-term impact of layoffs, but “the potential distraction and uncertainty created by this turnover likely has also contributed to the slowdown in actions filed,” according to the report.
Enforcement actions have focused much more heavily on outright fraud and on regulatory failures affecting retail investors, rather than efforts to punish investment advisers for poor records management or an inability to keep staff from discussing business on personal text or other undocumented media – issues that were persistent enforcement targets for the SEC during Gensler’s tenure.
On Sept. 3, for example, the SEC announced it had shut down an old-fashioned Ponzi scheme involving more than $770 million in investments from 2,700 victims that lost investors more than $400 million.
The week before that, it announced levied more than $26 million in penalties on Vanguard and Empower for failing to disclose conflicts of interest and compensation plans for involving third-party investment advisers enrolling clients in Vanguard and Empower personal-investment services.
“While it is premature to conclude that these first six months will foreshadow what’s to come for the next three and a half years under Chairman Atkins,” King & Spalding report concluded, “the data so far reflects an emphasis on cases involving retail customer or investor harm.”
Staff reductions have had an impact in other areas, however, and have worsened problems the agency was already having involving processes that are heavily dependent on the knowledge and judgment level of the staff involved, according to an Aug. 26 report from the SEC Office of Inspector General.
The SEC lost 27 of the 299 members of its disclosure-review staff since February, for example, which has reduced the level of institutional knowledge at the agency, and resulted in “inconsistent documentation and a lack of comprehensive guidance,” the IG report found.
The brain drain did not create, but did intensify an existing problem with the SEC’s disclosure review process, which lacked sufficient documentation, training and transparency in its actions during review during both 2023 and 2024, the Inspector-General report concluded.
