Although likely new chair Paul Atkins remains unconfirmed by Congress, the Securities and Exchange Commission has begun life under Trump with a flurry of activity this year.
The action confirms what commissioner Hester Peirce told II back in December that the new administration would not signal an end to enforcement or regulation, just a sea change in priorities.
So far there has been enforcement action taken on breaches of fiduciary duty, insider trading, and an investment adviser that converted retail brokerage accounts into advisory ones to attain higher fees, contrary to the Investment Advisors Act. The Commission launched a crypto task force in late January under Peirce, and last week followed up with a new cyber and emerging technologies unit, to be led by Laura D’Allaird that will also seek to protect retail investors.
Still, the deregulatory push is on. The SEC announced an end to enforcement measures on Robinhood’s crypto actvivity entered into under Gary Gensler on Monday, without action taken, following a similar decision regarding Coinbase last week.
On February 12, the SEC reversed an exemption to Exchange Act Rule 14a-8 that allowed investors to propose ESG resolutions at companies’ annual meetings, reportedly provoking Blackrock and Vanguard to stop meetings with companies embroiled in shareholder battles in fear it could run afoul of the changes. The Commission also rescinded a staff accounting bulletin that prevented banks and dealers from holding crypto assets in custody.
Also Monday, acting chair, Republican Commissioner Mark Uyeda, outlined the new approach of the SEC at the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference. The speech focused on the commission’s role in fostering innovation, job creation, and economic growth using cost-effective regulations for all stages of a company’s lifecycle.
Igor Rozenblit, managing partner at Iron Road Partners and former co-head of the private funds unit at the SEC, concluded that “despite all the noise and disruption that’s going on right now, with DOGE and the rest of the federal government, it looks like the SEC agenda is shaping up to be a fairly standard one.”
Rozenblit said that the SEC’s charge of RIA One Oak Capital Management and its former advisor Michael DeRosa for breach of fiduciary duties to retail clients, for example, relied on a negligence standard, a low level standard that allows an individual to be charged with a fairly technical violation.
“Those are components that you see in many SEC cases, the one difference here was that it was really focused on retail and individual harm, and it was fairly straightforward and easy to understand what the harm to those people was,” he said. “When you look closely at the formation of the cyber unit, which is about half the size of the old cyber unit, it looks to be cross functional and has more than just enforcement resources despite being led by an enforcement member of staff. It will continue to pursue, among other things, enforcement of crypto fraud, so it’s not like that is going to go away either.”
Moving the Goalposts
Uyeda emphasized capital formation, empowering retail investment in private companies, rejuvenating the IPO market, and reducing public company disclosure requirements in the speech.
“If you look at the speech, all the regular SEC components were there, he emphasized really taking a closer look at the accredited investor standard and taking a closer look at ways to let retail investors, or not accredited investors, invest in private funds, including private equity and private companies,” added Rozenblit. “It is exactly what you would expect, despite all the distractions.”
Changes to the accredited investor rules that prevent large numbers of investors from entering the private markets are expected and welcomed by the alternatives sector as it looks to increase retail participation.
Now that Ayuda has indicated this will be a priority, alts firms will be able to prepare for this future in a more concrete manner. One source suggested it was likely that Atkins was influencing Uyeda and others at the Commission despite having not been confirmed, given his relatively close relationship with the existing leadership team.
According to Shriram Bhashyam, COO of Sydecar, a fund software service, “what’s happening, and what will continue to happen, is that the aperture of who qualifies to be accredited is going widen.”
“You usually see this pendulum swing at the SEC based on which administration is in place, like the investor protection focus under Mary Jo White or capital formation under [Jay] Clayton. There will be a capital formation posture again under Trump and Atkins, which will mean we’re going to see new ways for companies and fund sponsors to build up capital,” he said. “We will see qualifications increase, like perhaps allowing people who have taken the CFA or something like that to be accredited, even if they don’t meet the income or net worth thresholds.”
But while the future remains uncertain even with this speech from Uyeda and the clear indication of the direction of travel it offers, asset managers and other financial companies regulated by the SEC face an uncertain future.
Ed Perks, CIO of Franklin Income Investors and president of Franklin Advisers, said the industry is watching closely to see what actually materializes.
“There could be pretty significant variations, whether it be SEC or DoJ, or really any area. As an investor it’s pretty hard to make broad calls based upon these thoughts around what may or may not play out,” he said.
Perks said that three or six months down the line there will most likely be a lot that was talked about or teased that turned out to be much tougher or unrealistic to implement than was originally expected.
