More than 500 SEC staff may take buyout: reports

Headcount at the SEC could drop to its lowest level in a decade if sources are correct in estimating the agency will lose between 10% and 15% of its staff to buyouts and layoff programs

Approximately 500 members of the SEC’s approximately 5,000 staffers accepted the $50,000 incentive package the agency offered as part of a government-wide effort to shrink the size of federal agencies, according to March 21 reports from Reuters and a  Bloomberg.

That number could rise as high as 750, or 15% of the SEC’s total staff, if the buyout is more popular than anticipated and other incentive and layoff programs are included, Politico reported the same day.

The Division of Enforcement will take the hardest hit following the decision of approximately 150 out of a total estimate of 700 taking the buyout before the end of Friday’s deadline, Reuters said, citing sources familiar with the results who warned that some who signed up for the buyout could back out later, while other resignations could be unrelated to the incentives.

More than a dozen senior staffers have signed up for the offer, Reuters said, though that number correlates closely with the 10 to 12 senior-level regional-office director positions the SEC reportedly plans to eliminate as part of a consolidation plan that includes giving up the leases on regional offices in Los Angeles, Philadelphia and possibly Chicago.

Fund Directions sources refused to estimate the number of those likely to accept the buyouts, but said drastic shifts in enforcement and regulatory policy are likely to make resignations more likely for SEC staff hired during former SEC chair Gary Gensler’s effort to beef up headcount.

Voluntary cuts now, several suggested, could reduce involuntary cutbacks later.

Only employees hired by the SEC before Jan. 24 are eligible for the buyouts. Those who accept must agree to resign, take a job with another agency or retire, and agree to pay back the buyout incentive if they return to the SEC within five years.

The size of the SEC’s staff totaled 4,650 at the end of 2016, but dropped by 3% to approximately 4,501 by the end of the first Trump administration, according to the SEC’s 2023 budget justification report to Congress in which then-SEC chair Gary Gensler argued that expansion of the markets the SEC regulates and number of regulated bodies it oversees required significant growth in staff size as well.

The SEC’s 2024 budget-request justification asked for a total of 5,475 positions – a 3% increase compared to 2023 – “to regulate approximately 16,000 registered funds, more than 15,300 investment advisers, more than 3,500 broker-dealers, 24 national securities exchanges, 101 alternative trading systems, 10 credit rating agencies, 33 self-regulatory organizations, and 7 active registered clearing agencies, among other external entities.”

A reduction of 500 positions from the current level of approximately 5,000 would bring the total down to the same level as at the end of the first Trump administration, though layoffs of probationary employees, extended furloughs or other involuntary separations would drive it down even further.

Jay Clayton, who served as SEC chair during the first Trump administration, also defended the size of the SEC staff and cited research showing that SEC review improved the quality of disclosures, according to a March 13 analysis in which Columbia Law School professors John Coates, John Coffee Jr., James Cox, Merritt Fox and Joel Seligman compared the cutbacks and restrictions by the current Trump administration to “watching the SEC face a death by 1,000 cuts.”

“We are aware that some SEC skeptics have argued that the SEC brought this pending loss of independence on itself through the energy and independence that have long characterized the agency,” they wrote. “Others claim that the SEC can operate with less resources by reallocating its troops, moving them from less active offices and departments to more active ones. Both claims are erroneous. As experienced securities counsel are aware, the SEC’s role is statutorily required and works best when counsel and the SEC staff work cooperatively.”