The new leadership of the SEC getting ahead of any potential demands for staff cuts and reorganizations by removing the most senior staffers at 10 regional offices across the country, according to Reuters.
Regional directors were notified Feb. 21 that their roles will be eliminated as part of a budget-cutting plan to be submitted next month, according to a Feb. 25 Reuters story.
The SEC has not responded to questions about the report, which it attributed to anonymous SEC insiders, but the move does appear consistent with a Feb. 11 executive order directing federal agencies to prepare for mass layoffs as part of an effort to reduce the size, cost and services provided by government agencies “through efficiency improvements and attrition.”
A memo put out Feb. 26 by the U.S. Office of Management and Budget lays out a two-phase plan under which federal agencies must submit by April 14 plans to cut operating costs, reduce headcount and save money by other means, including a move-out of Washington, D.C. to “less costly parts of the country.”
Reuters previously reported that the SEC was on the short-list of next likely targets for controversial cost-cutting by Elon Musk’s unofficial, “advisory” Department of Government Efficiency (DOGE).
Mass firings
Disruption by DOGE is still a possibility, but the SEC is one of the agencies ordered to conduct reorganizations and mass firings under the White-House/OMB reduction-in-force plan under which most agencies must begin mass firings starting in June – three months after the plans are submitted. Reorganizations must be completed by Sept. 30, according to the memo.
The memo instructs agency heads to eliminate any jobs whose function is not specifically required by law and asks for suggestions about what departments could be eliminated to delete specific functions of the agency, and whether the agency as a whole should be eliminated.
Attorneys already working for the SEC may be immune from White House instructions that federal agencies terminate employees classed as probationary because they’ve been hired or promoted during the past two years, but mass firings ordered in the OMB memo go much further.
Employees working on diversity, equity and inclusion (DEI) initiatives and any employees working on functions that Trump “suspends or closes” will also get the axe as part of the reduction-in-force plans.
Overseeing execution of the plan will be the responsibility of the memo’s author, Russell T. Vought, the new director of OBM who was a key author of Project 2025, the blueprint for political transition published by the ultra-right-wing Heritage Foundation.
The memo exempted some categories of job functions from cuts, including jobs in including law enforcement, national security, uniformed military, the U.S. Public Health Service, National Oceanographic and Atmospheric Administration, U.S. Postal Service.
Also getting a pass are recent political appointees and employees of the Executive Office of the President.
It is unclear under what circumstances the orders are legal and where they are not – especially regarding the SEC and other agencies created by Congress to be independent specifically to avoid political manipulation of health care, the economy, public spending and other critical government functions.
It is also unclear to what extent the SEC under acting SEC chair Mark Uyeda will continue to cooperate with increasingly strident demands from the White House without pushing back.
Institutional knowledge
The SEC is already losing or is increasingly likely to lose many of its most experienced and knowledgeable staff – which means losing much of the organizational knowledge that keeps the agency functioning, according to industry experts who spoke to Fund Directions anonymously due to the uncertainty of the situation and their concern about the risk of retribution.
SEC staffers working in the regional offices already being targeted for layoffs, for example, provide the bulk of the agency’s expertise in specific areas of securities law – especially examination and enforcement, according to attorneys with experience advising fund directors and investment firms.
“The real benefit of having the Commission doing these rules is that they are experts – whether or not you agree with the rules or their interpretation,” according to Mutual Fund Directors Forum (MFDF) president Carolyn McPhillips, who did speak on the record. “They are steeped in the securities laws in a way people outside the agency are not.”
“The SEC considers its workforce to be its most important asset,” according to an October, 2024 report from the SEC’s Office of the Inspector General.
Flat funding in the SEC’s FY2024 budget caused the agency under Gensler to institute “austerity measures, including a freeze on filling vacant positions and substantial benefit cuts,” the report said.
The report criticized the SEC under Gensler for putting “greater pressure on operations” with staff vacancy rates as high as 9.3% during FY2023. However, it acknowledged some improvement in FY2024 after the vacancy rate dropped to 8% and attrition dropped from 4.7% to 3.4%.
“The changing regulatory environment will likely increase operational demands on the Agency and its staff. Lack of resources may hinder the Agency’s ability to meet these challenges, mitigate its risks, and pursue its vital mission,” the report concluded.
Mass firings vs Gensler-era staff growth
Gensler insisted that one of his primary goals as SEC chair was to bring the agency back up to full strength after a drop in headcount during the first Trump administration.
The agency did that in 2023 when headcount rose by 400 to top 2016 staffing levels by 3%.
Gensler’s efforts to continue the growth in headcount were stymied, however, by flat funding from Congress during fiscal 2024.
Gensler’s last budget proposal, for fiscal 2025, included a 6% increase to $2.59bln, which Gensler attributed to the need for more sophisticated analytics and more staff to provide increased scrutiny of crypto and other technologically empowered investment opportunities. The Senate Appropriations Committee proposed reducing the SEC budget to $2.23bln, however.
The increase would have allowed the SEC to expand its staff to a total of 5,621 positions, 5,073 of them full-time equivalents.
Much of the increase was earmarked for the addition of 33 positions in the Division of Enforcement, with total funding of $800m and 23 new positions in the Enforcement Division for which the SEC requested $600m in funding.
