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What does the First Month of Trump 2.0 Predict for SEC Enforcement?

By Barry Rashkover

            Thursday, February 20, 2025, marked the completion of Donald J. Trump’s first month as President for a second term.  With a frenzy some have likened to the “Tasmanian Devil” Warner Brothers cartoon, his administration has taken a barrage of steps intended to dramatically alter the federal bureaucracy. What does all this mean for the Securities and Exchange Commission and SEC Enforcement in particular?  Although only one month might be a slender foundation upon which to make predictions – especially since SEC Chair nominee, Paul Atkins, has yet to be confirmed and take office – some trends seem to be emerging:  (1) fewer enforcement actions and, of those, a focus on fraud and retail investor harm; (2) reinventing the SEC’s approach to crypto and a focused approach to cyber-related misconduct; (3) likely more influence from the White House; and (4) continued turmoil with litigating SEC actions as Administrative Proceedings.

One Month of Enforcement Actions

During the first month, the SEC filed few new enforcement actions.  It brought some administrative proceedings to bar individuals from association with the securities industry as follow-on relief to SEC actions that previously had charged those individuals with fraud.[1] But, when it comes to charging new misconduct, the SEC has been relatively quiet. Three SEC actions brought over the first month suggest an enforcement focus on fraud and other misconduct targeting retail investors:

• -Regulation BI Case. The Commission charged a broker-dealer, Centaurus Financial, Inc., and several associated individuals with violating Regulation BI’s Care Obligation when recommending that several customers invest in risky corporate “L Bonds.” [2] The settled order detailed the investor profiles of the customers, most of whom were senior citizens.

 

• -Advisory Fee Disclosure. In another settled administrative proceeding, the SEC charged an investment adviser, One Oak Capital Management, LLC, and an associated individual with failing to make disclosures about advisory fees when moving clients from the brokerage accounts they held at a separate institution to investment adviser accounts at One Oak.[3] The order noted that “[m]ost of these customers were elderly and had been long-time customers” of the associated person at his separate broker-dealer.

 

• -Offering Fraud. In a third action reminiscent of 1990-era frauds, the SEC charged several individuals and entities they controlled with “using boiler room-style high pressure sales tactics, false and misleading statements, and other means of trickery and deception to offer and sell investment fund interests purportedly representing shares of stock in private companies that had not yet held an initial public offering.”[4]  The SEC alleged that the defendants raised over $70 million from more than 550 investors throughout the US.

 

Especially given anticipated DOGE-driven reductions in SEC headcount,[5] we expect that the current slow pace of filed SEC enforcement actions will continue.

Crypto and Cyber

Nowhere has the Commission’s shift been more dramatic than with crypto.  On the very first full day of Trump 2.0, Acting Chair Mark Uyeda announced the formation of a new Crypto Task Force, headed by Commissioner Hester Peirce, “dedicated to developing a comprehensive and clear regulatory framework for crypto assets.”[6] “Drawing from talented staff across the agency, the Task Force will collaborate with Commission staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law.”  In a rebuke to the Gensler Commission’s approach to crypto, Acting Chair Uyeda said “the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way.”  The SEC disbanded its prior Crypto Assets and Cyber Unit and is dropping its case against Coinbase alleging that it unlawfully operated a securities exchange and broker-dealer.[7]  Revealing the lengths to which the SEC is rethinking with an entirely clean slate its approach to crypto, the task force under Commission Peirce has invited public comment on some 48 separate crypto regulatory questions.[8]

To replace the Crypto Assets and Cyber Unit, the Commission has announced the “Cyber and Emerging Technologies Unit (CETU)” “to focus on combatting cyber-related misconduct and to protect retail investors from bad actors in the emerging technologies space.” The CETU will focus on enforcement topics such as fraud committed by using “emerging technologies, such as artificial intelligence,” “social media, the dark web, or false websites to perpetrate fraud,” hacking, fraud involving blockchain, “[r]egulated entities’ compliance with cybersecurity rules and regulations,” and “[p]ublic issuer fraudulent disclosure relating to cybersecurity.”[9]

White House Influence

The White House issued two executive orders that apply to the SEC – the February 18, 2025 Order “Ensuring Accountability for All Agencies” [10] and the February 19, 2025 Order “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative.”  How these orders – to the extent they survive judicial challenges – affect SEC enforcement remains to be seen, but each has provisions that do facially.

The first order touches on SEC enforcement in three ways:  (1) it prohibits independent agencies such as the SEC from taking positions, including in litigation, that advance legal positions at odds with interpretations by the President or the Attorney General; (2) it gives the Director of the Office of Management and Budget (“OMB”) an oversight role by, among other things, requiring him to “consult with independent regulatory agency chairmen and adjust such agencies’ apportionments by activity, function, project, or object, as necessary and appropriate, to advance the President’s policies and priorities;” and (3) it requires agencies to appoint a White House Liaison.  The first of these three could impact how the SEC charges cases; the second might influence SEC priorities; the third might create an additional audience for defense counsel written and oral advocacy.

The second executive order mandates a lookback on existing regulations – requiring Agency Heads coordinating with OMB and DOGE to review “all regulations subject to their sole or joint jurisdiction for consistency with law and Administration policy.”[11] But Section 3(b) directly affects enforcement:

Agency heads shall determine whether ongoing enforcement of any regulations identified in their regulatory review is compliant with law and Administration policy.  To preserve resources and ensure lawful enforcement, agency heads, in consultation with the Director of the Office of Management and Budget, shall, on a case-by-case basis and as appropriate and consistent with applicable law, then direct the termination of all such enforcement proceedings that do not comply with the Constitution, laws, or Administration policy.[12]

Does this provision give defense counsel an opportunity to request review and termination of ongoing litigation and investigations where they believe the SEC or Staff are advancing plainly incorrect legal interpretations or results inconsistent with Administration policy?  Perhaps it does.

Continued Administrative Proceeding Turmoil

The SEC has avoided litigating cases in front of Administrative Law Judges for several years in the wake of a succession of constitutional challenges including a challenge several years ago that the SEC’s ALJs violated Appointments Clause in Article II of the Constitution.[13]  The flip side of that argument, which parties have more recently asserted, is that employment protections guaranteed to ALJs across agencies violate the President’s removal powers in Article II.  On February 18, 2025, in one such case, the Department of Justice, representing the SEC, announced that it no longer will defend SEC ALJ’s from such challenges based on the President’s Article II removal powers.  “[T]he Acting Solicitor General has decided that the multiple layers of removal restrictions for administrative law judges in 5 U.S.C. § 7521 do not comport with the separation of powers and Article II and that the United States will no longer defend them in litigation.  Accordingly, the government will not continue to press its merits defense of Section 7521 in this action.”[14]

What this means for SEC ALJs remains to be seen.  At a minimum, for now, it will continue the SEC’s posture of litigating cases in federal court only, rather than before ALJs.  It might provoke ALJ terminations, litigation over the legality of any such actions, and further reforms to the administrative judicial process.

*  *  *

            The Wild Card?  Nothing stays static for long.  No one predicted a nationwide call to regulation after 9/11, but it happened less than a year later with Enron, Adelphia and other public company accounting crises.  No one predicted how Madoff would require a reinforced SEC.  And few observers predicted how the Financial Crisis would result in tighter regulation and Dodd-Frank.

Stay tuned for more.

                                                                                    Barry W. Rashkover

Walden Macht Haran & Williams LLP

Disclaimer:

These materials contain attorney advertising.  Prior results do not guarantee a similar outcome and results depend upon a variety of factors unique to each circumstance.  WMHW provides this information as a service to clients and other friends for educational purposes only.  It should not be construed or relied on as legal advice, or to create a lawyer-client relationship.  Readers should not act upon this information without seeking advice from professional advisers.

[1]            E.g., In the Matter of Sakthivel Palani Gounder, Rel. No. 34-102431 (Feb. 14, 2025); In the Matter of Arthur P. Pizzello, Jr., Release No. 34-102340 (Feb. 4, 2025).

[2]            In the Matter of Centaurus Financial, Inc., Rel. No. 34-102379 (Feb. 7, 2025).

[3]            One Oak Capital Management, LLC, Rel. No. 34-102425 (Feb. 14, 2025).

[4]            SEC v. Max Infinity Management LLC, No. 1:25-cv-549 (E.D.N.Y. Jan. 31, 2025).

[5]            E.g., Chris Prentice and Douglas Gillison, Exclusive: US securities regulator plans to cut regional directors due to Trump administration cost scrutiny, sources say, Reuters, Feb. 24, 2025, at https://www.reuters.com/world/us/us-securities-regulator-plans-cut-regional-directors-due-trump-administration-2025-02-24/

[6]            Press Release, Securities and Exchange Commission, SEC Crypto 2.0:  Acting Chairman Uyeda Announces Formation of New Crypto Task Force, No. 2025-30 (Jan. 21, 2025).

[7]            Dave Michaels and Vicky Ge Huange, Coinbase Says SEC Intends to Drop Lawsuit Against Crypto Exchange, The Wall Street Journal, Feb. 21, 2025 at https://www.wsj.com/finance/regulation/coinbase-says-sec-intends-to-drop-lawsuit-against-crypto-exchange-4b3b0c36; Brad Smith and Seana Smith, SEC closes Robinhood investigation after dropping Coinbase suit, Yahoo! Finance, Feb. 24, 2025 at https://finance.yahoo.com/video/sec-closes-robinhood-investigation-dropping-144709304.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAEYYVaT5YMsv46tWxO1OekDJSluSY_bDZFheSlsqz31GGV1VUaQvM0NZsrgUTKchJ0CcakOlv10as5dN0sGspDpK61s4KvMnm8tdysvP-jIAdoDflc4yTQOPAhvu9Xynq7U2nuBVNIguO0EWOIhyilNX2-1UM37tqad-xsaykhp3;

[8]            Statement of Hester M. Peirce, Commissioner of SEC, There Must Be Some Way Out of Here, (Feb. 21, 2025).

[9]            Press Release, Securities and Exchange Commission, SEC Announces Cyber and Emerging Technologies Unit to Protect Retail Investors, No. 2025-42 (Feb. 20, 2025).

[10]           Exec. Order No. 14215, 90 FR 10451 (2025).

[11]           Exec. Order No. 14219, Unpublished (2025) at https://www.whitehouse.gov/presidential-actions/2025/02/ensuring-lawful-governance-and-implementing-the-presidents-department-of-government-efficiency-regulatory-initiative/.

[12]             Exec. Order No. 14219.  Section 6(d) defines “Enforcement action” to mean “all attempts, civil or criminal, by any agency to deprive a private party of life, liberty, or property, or in any way affect a private party’s rights or obligations, regardless of the label the agency has historically placed on the action.”

[13]           Lucia v. SEC, 585 U.S. 237 (2018).

[14]           Lemelson v. SEC, Civil Action No. 1:24-cv-2415 (D.D.C.), Notice of Change in Position (Feb. 18, 2025).