According to Fortune, outgoing Securities and Exchange Commission Chair Mary Jo White is refusing to delay adoption of new rules and regulations.  Senate Republicans–in particular the Senate Banking Committee’s top two Republicans, Chairman Richard Shelby and Mike Crapo–requested White delay adopting new rules until after Trump takes office.  However, as reported by Reuters, White responded to Shelby and Crapo on December 12th, stating that she intends to move forward with derivative reforms mandated by Dodd-Frank, including capital and margin requirements for swap dealers, and a limit on how mutual funds and exchange-traded funds use derivatives to leverage returns.

BoardThere remain obstacles to these rules.  First, because two commissioner positions remain vacant, there are only three remaining commissioners, of which there must be a quorum to pass the new rules.  The other two commissioners, Kara Stein and Michael Piwowar, are democrat and republican, respectively.  Second, Congress could quite easily reverse any new rules within 60 legislative days of becoming final, which the Republican-controlled Congress could very well vote to do.

Thus, the takeaway is that firms must still monitor proposed new rulemaking under White’s SEC for the next few weeks, while also keeping an eye on what Congress will do in response to any new rules promulgated over the next month or so.

Following up on our earlier report that Mary Jo White, the chair of the Securities and Exchange Commission, will step down at the end of the Obama administration, news of other departures within the SEC has begun to spread.  The latest is Keith Higgins, head of the Division of Corporation Finance, who announced his plans to leave the SEC in January.  According to Sarah N. Lynch at Reuters, Higgins was oversaw the adoption of many rules pursuant to the 2012 Jumpstart Our Business Startups (JOBS) Act.

CEO treeOther top SEC officials who have recently announced their planned departures include: Stephen Luparello (Trading and Markets Division Director), Mark Flannery (Chief Economist), Matthew Solomon (Chief Litigation Counsel), and James Schnurr (Chief Accountant).

According to Lynch, Andrew Ceresney (SEC Enforcement Director), who worked alongside White prior to joining the SEC, both in private practice and at the U.S. Attorney’s Office in New York City, declined to comment on any plans to leave the SEC.

As we noted previously, these departures will continue to pave the way for President-Elect Trump to to deregulate the financial sector.

The latest post-election domino has fallen.  Mary Jo White, the chair of the Securities and Exchange Commission, will step down at the end of the Obama administration.  White announced her departure on Monday, paving the way for Trump to implement his plan to deregulate the financial sector. In addition to replacing White, Trump will be able to fill two openings on the five-member commission, according to Renae Merle of the Washington Post.  Thus, it is clear that Trump will be able to reshape the direction of the SEC and quickly pursue a path towards deregulating Wall Street.


Financial institutions, firms, brokers, counsel, and investors should all keep a close eye on potential replacements that Trump is considering, as they will have an immediate impact on securities regulation, or lack thereof.  It is now abundantly clear that the regulatory landscape is about to undergo a major shift.  Stay tuned.

Two Securities and Exchange Commissioners – the agency’s two newest members – offered contrasting views of the commission’s use of its enforcement powers.

Among other issues, one said the agency has delegated too much authority to its enforcement staff, while the other hailed the “incredible work” done by the SEC staff on a daily basis.  The anti-Enforcement Commissioner sharply questioned the commission’s delegation of authority in 2009 to the Enforcement Director to issue formal orders of investigation, and noted that, historically, formal orders were approved by the Commission.  The other Commissioner stated the Enforcement Division “was passionately working to protect investors,” and using “all of the tools in its toolbox.”

With teamwork like this, much work is sure to be accomplished.

Now that 2014 is here, it is a good idea to understand what the Enforcement Division might focus on this year.  In a recent article that appeared in the BNA, David Marder, a partner with Robins, Kaplan, Miller & Ciresi identified fifteen things to expect in the coming year. 

The fifteen things he noted to expect include: 

  1.             Increased use of whistle-blowers;
  2.             Increase requiring defendants admit guilt in settlements;
  3.             Increasing the use of available technology;
  4.             Increase the number of easier to prove cases;
  5.             Push self-reporting of securities violations;
  6.             Increased focus on microcaps;
  7.             Continued focus on gatekeepers;
  8.             An emphasis on financial reporting;
  9.             Protection of market structure and integrity;
  10.             Increase the activity of specialized SEC units;
  11.             Continue attacking insider trading;
  12.             Investigate misconduct at hedge funds, private equity funds and mutual funds;
  13.             Increase the size of the trial unit to avoid losing at trial;
  14.             To further leverage the exam program; and
  15.             Increase administrative proceedings.

 Although this certainly seems like a robust agenda, expect the SEC under the leadership of Chair Mary Jo White to pursue it with particular vigor.   

It seems like the SEC has a lot to prove; in part, to justify it budget.  The question is whether the industry is adequately prepared to deal with a bulked up and more aggressive SEC.  Time will tell . . . .

Although the SEC is undergoing a period of transition with a new Chairman and co-heads of the Enforcement Division, the message is the same.  That is, its day-to-day priorities remain the same, and it will bring more cases.

In particular, the private equity area is “ripe for action” given the way funds are structured and the current challenging economic conditions.  Further, enforcement actions against investment advisers will only become more rigorous in the years ahead. Over the last two years, there has been a significant increase of actions against investment advisers.  The SEC’s institutional focus on asset management firms, its whistleblower and cooperation initiatives, and the Enforcement Division’s new emphasis on “proactive detection.”  In the private equity space, this activity all translates into more enforcement actions.

Thus, SEC actions will continue in these areas.

The SEC has been routinely criticized for not completing its administrative work under the Dodd-Frank Act.  Despite this criticism, the SEC stated that it had only 4 remaining initiatives it must complete. and

The SEC must, now, reorganize the Offices of Administrative Services, Financial Management, and Human Resource, as well as create the Office of Chief Data Officer.  The SEC evaluated how its operations could be restructured to improve its use of resources and internal communications, key technological systems and employ staff with “high-priority skills” to enhance its ability to police markets and protect investors.

The SEC believes it has responded to these concerns, and claims to continue to improve its operations.

The SEC’s 2010 restructuring of its Enforcement Division has resulted in the agency taking on more complex cases with a new level of expertise. 

The SEC has hired specialists, including highly educated analysts who understand quantitative and high-frequency trading to assist the SEC with its enforcement investigations.  The experts act in both the SEC’s enforcement and examination functions, and have assisted the SEC in not only in developing new cases but also providing insight into existing, very complicated investigations over many areas.

However, resources have been tightened at the SEC.   In 2002, the agency could devote 25 examiners to each $1 trillion in assets under management; today, that figure has shrunk to 10 examiners for about every $1 trillion in assets. 

Given resource restraints, the SEC is trying to bring more timely cases to increase its impact.  In any event in 2012, the SEC brought 29 separate actions involving alleged misconduct occurring during the financial crisis that named 38 individuals, including 24 chief executive officers and chief financial officers.  Approximately 117 defendants were involved in alleged illegal activity during the financial crisis, leading to about $2.2 billion in monetary relief.

In short, the SEC claims it has not missed a beat – one wonders if the evidence bears it out.

The SEC’s Division of Investment Management has publicly stated that it will review the regulations relating to the Investment Advisers Act of 1940 given the large influx of new RIAs as a consequence of the registration of hedge and private equity fund managers.

These new RIAs, now, account for roughly 40% of all RIAs.  IM is looking to determine if it needs to change or adapt the Advisor’s Act to deal with these new investment advisers.  Although the SEC is routinely criticized for not adapting to market changes, it seems that the SEC Staff is actually taken a pro-active approach with this issue.

Change, however, is not as quick.

One of the more anticipated and debated outgrowths of the Dodd-Frank Act was the designation of a self-regulatory organization responsible for investment advisers.  Yet, it has recently been reported that this issue is dead for the current Congressional session, although likely to come back again.

The only consensus thus far is that the SEC is ill-equipped to be the SRO.  The primary disagreement has focused on who should be the SRO for investment advisers: a new entity, FINRA or an enhanced SEC funded by user fees.

Regardless of the outcome of the Presidential election, this issue is likely to percolate once again in the next Congressional session.  The SEC is clearly not currently constituted to serve in the capacity as the SRO and, at the same time, there is a push for investment advisers to be subject to better oversight.

In the short-run, this means that investment advisers will still be subject to SEC examinations, which historically have resulted in very few examinations on a yearly basis relative to the number of investment advisers.  In the long-run, the debate will continue and it is likely that, at some point, there will be an SRO for investment advisers.  The most like SRO would, in my view, be an enhanced SEC as it already serves in an oversight role over investment advisers.  The question becomes whether any of us will be alive to see this happen.