As I noted last week, President-Elect Donald Trump has indicated his intent to name former SEC Commissioner Paul Atkins as SEC Chair in the upcoming new administration. Atkins’s appointment, as I noted in last week’s post, could mean significant changes to the agency’s regulatory approach and enforcement priorities. Observers and commentators have continued to weigh in on the potential implications of Atkins’s appointment, and, as discussed below, academic commentators have tried to emphasize the importance of monitoring the agency closely under the new administration to ensure that it continues to be able to fulfill its traditional mission.

Just to recap my prior observations, Atkins is expected to implement a lighter regulatory touch. He has been an outspoken critic of the current administration’s regulatory approach, particularly with respect to cryptocurrency. The expectation is that he will take friendlier approach to crypto. Commentators have also suggested that Atkins will roll back the climate change disclosure guidelines the agency finalized earlier this year. The expectation is that under Atkins the agency will not seek to address social problems through agency regulation.

Last weekend, SEC veteran John Reed Stark published a lengthy post on X identifying certain other initiatives he expects from the agency under Atkins. Among other things, Stark was head of the SEC’s Office of Internet Enforcement during Atkins’s prior tenure as SEC Commissioner.

Stark opened his post with a fulsome expression of his respect for Atkins, adding that while he disagrees with Atkins when it comes to cryptocurrency, he expects that Atkins “might become the greatest SEC chair in US history.” Stark expressed his expectation that Atkins will institute an “extraordinary, monumental, and urgently required transformation within the SEC, especially within the SEC Division of Enforcement.”  In his X post, Stark identified a series of specific changes he expects to see. These changes are well-summarized in John Jenkins’s December 10, 2024 post on The CorporateCounsel.net blog, here.

Among the key changes Stark expects from the agency under Atkins are the following:

• Adoption of an “Open Jacket” Disclosure Policy: During his prior tenure at the Commission, Atkins took the position that the agency was failing to share both incriminating and exculpatory evidence with enforcement targets. Reed expects that Atkins will direct the Enforcement Division to fully inform enforcement targets about the evidence before entering into settlement discussions.
• Pulling Back on Cyber Enforcement and Cyber Disclosure Requirements: Stark expect that under Atkins the agency will dial back its enforcement efforts targeting companies that experience cyber setbacks, and to instead focus on cyber-related disclosure fraud. Stark also expressed his expectation that Atkins will ask fellow commissioners to repeal the cyber disclosure guidelines the agency finalized in 2023.
• Stepping Back from Corporate Penalties and Emphasizing Individual Accountability: Stark expresses his belief that Atkins questions the incentives created with companies pay large penalties in order to avoid individual sanctions. Stark expects that under Atkins the agency will emphasize individual accountability in preference to corporate penalties.
• De-emphasize ESG-Related Disclosure Enforcement: Stark also expects that under Atkins the agency de-emphasize enforcement actions related to ESG disclosures.

Other commentators projecting ahead about the possible direction of the SEC in the new administration have focused on the possible impact on the agency of the efforts of the proposed Department of Governmental Efficiency under Elon Musk and Vivek Ramaswamy. It is not lost on many observers that Musk has long been critical of the SEC, which has pursued several actions and investigations against him over the years. Musk’s long-standing criticisms of the agency has fueled concerns that the SEC may be among the agencies targeted as part of the reform efforts. (I will leave it to others to explore the conflict of interest issues involved.)

In a December 3, 2024, post on the CLS Blue Sky Blog (here), law professors John C. Coffee and Joel Seligman express their concerns not only about potential changes in policy at the agency but also about potential changes resulting from staffing reductions at the agency due to the  governmental efficiency reforms.  

The professors express their concern that the government efficiency efforts could result in a major reduction in the resources available to the agency, a development with important implications, among other reasons because the agency is very profitable. Last year, the professors note, the agency had recoveries of over $8 billion. The authors state their view that the SEC is “probably the most successful and effective of the New Deal administrative agencies, one that has helped preserve the integrity of our capitalist system,” but they fear that the efficiency initiative may undercut the agency’s efforts.

The authors emphasize that they not suggesting that the SEC will be abolished entirely, just that it “might be partially dismantled, in effect downsized from a battleship with proven ability at combatting fraud to more of a light cruiser unable to take on many cases.”

In response to the possible reduction of the agency’s fighting strength, the authors advocate the formation of a “Shadow SEC,” composed of acknowledged experts in securities regulation, intended to encourage debate through the presentation of “cogent and factual arguments.”

The proposed Shadow SEC “might frame issues in fuller detail and offer less drastic alternatives.” Although “[c]larity and objectivity will not always win,” the author suggests that with the Shadow SEC’s influence and insight, “sometimes they might. That is enough to justify the effort.”  “It may be an uphill battle,” they conclude, “but it is worth fighting as the SEC is very much worth saving.”

In a follow-up December 16, 2024 post on the CLS Blue Sky Blog (here), the authors announced the initial appointments to the Shadow SEC, a total of six academics including the two original authors. The authors suggest there may be further additional appointments.