SEC Tightens Control Over Enforcement Actions Under New Leadership

SEC commissioners will now approve any formal investigation to be taken by U.S. Securities and Exchange Commission lawyers, a new directive that diverges from the agency's recent practice and gives the commission greater control over SEC enforcement actions.

Key points:

The SEC now requires Commission approval for formal investigations, a shift that could slow enforcement actions.
The move aligns with the new administration’s push to curb regulatory “weaponization” of agencies.
Critics warn that tighter oversight may reduce staff autonomy, while proponents argue it prevents unnecessary probes.
The change signals a more business-friendly approach, particularly in sectors like crypto.

The U.S. Securities and Exchange Commission (SEC) has changed how it handles enforcement investigations under its new leadership. Staff attorneys must now seek Commission approval before launching formal probes, according to sources familiar with the directive, cited by Reuters.

Previously, enforcement officials had the authority to issue subpoenas without direct commissioner oversight. The change, which has not been publicly announced, marks a break from the SEC’s past practice and could slow down the investigative process. While informal inquiries can still proceed, requiring higher-level approval for formal orders introduces an extra layer of bureaucracy.

Political Influence at Play

The shift reflects broader policy changes under President Donald Trump, who signed an executive order on his first day in office to curb what he called the “weaponization” of federal agencies, including the SEC.

Currently, the Republican-majority SEC is led by Acting Chair Mark Uyeda, with Hester Peirce and Caroline Crenshaw as the other commissioners. Paul Atkins, a former SEC commissioner known for his pro-business stance, is expected to take over as chairman pending Senate confirmation.

Proponents of the new directive argue that it prevents unnecessary regulatory overreach, ensuring resources are focused on clear violations. Critics warn that it could weaken the SEC’s ability to act swiftly against corporate fraud and securities violations.

Potential Impact on Investigations

Attorneys, including former SEC officials, are divided on the implications:

Reed Smith partner Mark Bini told Law.com the change could prevent “ill-conceived investigations” that might otherwise drag on for years.
Covington & Burling partner Jerry Hodgkins, a former SEC enforcement official, noted that requiring commission approval could slow investigations, but also increase visibility at an earlier stage.
Steven Peikin, former SEC co-director of enforcement, called the requirement a “waste of resources,” arguing that it adds unnecessary red tape.

While some expect the SEC to focus more on traditional fraud cases, others believe the move could limit enforcement in complex areas like cryptocurrency and financial technology.

A More Business-Friendly SEC?

The SEC’s new directive reinforces expectations that the agency will take a less aggressive stance on corporate enforcement.

Under prior Democratic leadership, the SEC pursued high-profile investigations into cryptocurrency, ESG disclosures, and market manipulation. With Trump’s return, the agency is likely to prioritize investor fraud cases while stepping back from broader regulatory crackdowns.