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 unprecedented and unexpected actions under former Acting Chair Mark T. Uyeda, many in the securities industry remain uncertain as to what to expect from an Atkins-led Commission.
As a former Senior Counsel in the 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 Commission’s Enforcement program signal 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 rely 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 the elimination of the Regional Director positions (which have been in place since the 1930s), messaging that office leases would be terminated in the Los Angeles, Philadelphia, and Chicago regions, and a new requirement for 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 begun a dramatic shift in its approach to cryptocurrencies, including retreating from existing litigation and investigations, the decimation of the crypto element of Enforcement’s formerly named Crypto and Cyber Unit, and the establishment of a new Crypto Task Force, led by Commissioner Hester Peirce. Expect Atkins’ Commission to continue curbing crypto enforcement, yet still vigorously pursue patently fraudulent conduct in the space, particularly where there is investor harm.
Cybersecurity: Expect the Atkins Enforcement program to take a different approach to pursuing cybersecurity incidents, including treating companies subject to cyberattacks as victims rather than violators, while still pursuing clear cybersecurity-related misconduct, particularly where there is investor harm. 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). Atkins has publicly criticized climate-related disclosure rules, arguing they should be rescinded or modified. We can expect that, to the extent Enforcement pursues investigations concerning climate-related disclosures, they will 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 Enforcement to apply corporate penalties more narrowly (for example, where there is shareholder benefit to the detriment of the market or other companies). Additionally, expect Enforcement to focus increasingly on individual accountability of corporate officers and executives to deter fraudulent conduct.
