This is the fourth in our 2025 Year in Preview series examining important trends in white collar law and investigations in the coming year. We will be posting further installments in the series throughout the next several weeks. Our previous post, "Higher Education in 2025: Focal Points for Compliance and Investigations " can be found here.
The U.S. Securities and Exchange Commission (the "SEC" or the "Commission") is undergoing substantial changes following the reelection of Donald J. Trump in November 2024. From an overhaul in the Commission's leadership to the flurry of executive orders signed by President Trump implicating the Commission's regulatory and enforcement priorities, we expect the SEC to pursue different priorities in 2025 than it did under the direction of former Chairman Gary Gensler, which we discuss in this White Collar Year in Preview. We also highlight key Supreme Court cases that will have a substantial impact on the SEC's enforcement efforts moving forward. And we conclude by looking back at the SEC Enforcement Division's ("Enforcement" or the "Division") performance in fiscal year 2024.
I. Changes at the Top
Following the reelection of President Trump, two SEC
Commissioners, including its Chair, announced their departures. Meanwhile,
then-President Elect Trump nominated Paul Atkins to replace former Chair Gensler as
SEC Chair. Atkins, a financial services adviser and former SEC
Commissioner during the George W. Bush Administration, has been a
vocal critic of the Commission's enforcement activities,
including by arguing that corporate fines unfairly penalize
shareholders and that enforcement efforts should focus on
individual violators. He has criticized what he characterized as
the practice of pursuing minor securities law infractions to boost
enforcement statistics. While Atkins's Senate confirmation is
pending, President Trump has appointed Commissioner Mark Uyeda as Acting
Chair.
The Commission is typically overseen by five commissioners.
Currently, the Commission is composed of two Republicans, Acting
Chair Uyeda and Commissioner Hester Peirce, and one Democrat,
Commissioner Caroline Crenshaw. The current composition of the SEC
signals a shift away from the heavy regulatory hand during the
Gensler era. Acting Chair Uyeda emphasized recently that this transition will
permit the SEC to "focus [its] efforts ... on capital
formation and ensuring companies aren't impeded by ineffective
regulation." Commissioner Peirce likewise commented that the
SEC would be promoting "a regulatory environment that protects
investors, facilitates capital formation, fosters market integrity,
and supports innovation." These comments indicate a move away
from the climate and social regulatory agenda advanced by former
Chair Gensler to refocus more on traditional enforcement concerns
such as material misstatements, deficient internal controls, and
gatekeeper failures. In another signal of shifting priorities, on
February 10, 2025, the Trump Administration issued an executive order that directs Attorney General
Pam Bondi to effectively pause the Justice Department's
enforcement of the Foreign Corrupt Practices Act
("FCPA"). While the Executive Order was silent as to the
SEC—and the SEC retains its own authority to conduct
investigations and enforce the FCPA, particularly for violations of the
books-and-records and internal-controls provisions—the new
leadership of the agency will very likely re-align its FCPA
enforcement efforts to reflect the administration's expressed
priorities although there has been no clear directive to that
effect yet.
II. New Priorities Shifting Away from Some High-Profile 2024 Activities
a. Crypto Assets at the Forefront
On January 21, 2025, Acting Chair Uyeda announced that the SEC was launching a task
force spearheaded by Commissioner Peirce in an effort to develop a
comprehensive and clear regulatory framework governing crypto
assets. Commissioner Peirce has been a longstanding critic of the agency's
approach to crypto assets, which has primarily relied on
enforcement actions. In a recent speech, she noted that the task force would be focused on
determining whether various crypto assets constitute
"securities" under the securities laws; potentially
recommending the Commission to provide temporary or retroactive
relief from registration requirements for coin or token offerings
following the issuing entity's provision of information
regarding the asset; and working with investment advisers to
establish a framework within which advisers can legally and
practically custody crypto assets on behalf of their clients.
The SEC's newly-minted crypto task force dovetails with
President Trump's January 23, 2025 executive order promoting the
advancement of cryptocurrencies in the United States. The executive
order touts the importance of the digital asset industry to the
innovation and economic development of the United States and
establishes a working group to consider a national digital asset
stockpile. The executive order also outlines other priorities,
including protecting individuals and companies that use blockchain
networks and developers and miners who develop crypto assets.
b. Insider Trading
The SEC has long been focused on combatting insider trading. The
Commission brought 35 insider trading actions in 2024, representing
6% of all actions brought and a slight increase from the prior
year. While many of the insider trading cases brought were the
"bread and butter variety," in the previous
administration's final year, the SEC continued to stretch just
how far insider trading law can be pushed.
For example, the SEC secured a victory in its first "shadow
trading" enforcement action in SEC v. Panuwat. Shadow
trading is a novel theory of insider trading that involves an
investor possessing material non-public information about Company
A, who trades in the securities of Company B, another company with
which Company A shares some connection in the market (such as
competitor or comparable company). In Panuwat, the SEC
alleged that Panuwat, the then-head of business development at
Medivation (a mid-sized, oncology focused biopharma company),
purchased short-term, out-of-the-money stock options in Incyte
Corporation (another mid-sized, oncology focused biopharma
company), just days before the August 22, 2016 announcement that
Pfizer would acquire Medivation at a significant premium. According
to the complaint, when he did so, Panuwat knew that investment
bankers had cited Incyte as a comparable company in discussions
with Medivation and he anticipated that the acquisition of
Medivation would likely lead to an increase in Incyte's stock
price. In April 2024, Panuwat was found liable for insider trading
based on the novel shadow trading theory. The case was appealed in
November 2024, so the shadow trading theory is headed for review in
the appellate courts. Moreover, on the heels of this decision,
final judgment by consent was entered in another shadow trading
case pending in the Northern District of California.
It is of course difficult to predict where incoming Chair Atkins
will choose to focus his efforts in leading the agency, but it
seems most likely that he will pick up where President Trump's
last administration left off: staple SEC cases rather than cases
based on new theories of liability, and fewer insider trading cases
overall. This does not mean that SEC enforcement of insider trading
is going away. Indeed, data from SEC enforcement during the
previous Trump Administration reveals insider trading cases were
pursued, but not to the same degree as in other administrations.
For example, in 2019, the SEC pursued the lowest number of insider
trading enforcement actions since 1996 and charged the lowest
number of defendants since the Reagan Administration. More still,
it seems doubtful the new administration will continue to push the
envelope on what insider trading law covers. And the
record-breaking penalties seen in 2024 are unlikely to persist in
2025. The SEC is instead expected to take a more conservative
approach, seeking smaller penalties from corporations so as not to
inadvertently punish shareholders.
c. Recordkeeping/Off-Channel Requirements
In the past year, the SEC continued to bring enforcement actions
against regulated entities—such as broker-dealers and
investment advisers—that failed to comply with recordkeeping
requirements. Under the Investment Advisers Act of 1940 and other
relevant statutes and regulations, registered investment advisors
must maintain certain books and records. In particular, the SEC
pursued actions where entities failed to ensure that
"off-channel communications," such as those taking place
via employees' text messages and messaging apps, were
maintained as required by the Investment Advisers Act.
According to the SEC, compliance with these requirements is
necessary for protecting investors and ensuring well-functioning
markets. In fiscal 2024, the SEC brought recordkeeping cases that
resulted in over $600 million in civil penalties assessed against
over 70 firms. Most of the firms admitted to the facts presented in
their respective SEC orders and agreed to undertake remedial
measures such as retaining an independent compliance consultant.
These recordkeeping cases included the SEC bringing standalone
actions against investment advisors for the first time. Since
December 2021, the SEC has charged over 100 firms and levied over
$2 billion in penalties for record keeping failures.
The Trump Administration will change course with the agency's
initiatives given that President Trump has tapped Acting Chair
Uyeda, and Atkins as incoming Chair. On September 24, 2024, Acting
Chair Uyeda issued a joint statement with Commissioner Peirce urging
reconsideration of the enforcement approach to off-channel
communications given that "...even well-intentioned firms
could find themselves in the Commission's enforcement queue
time and again." Their statement calls for the development of
"...a pragmatic and privacy-respecting approach that enables
firms and the Commission to have the records they need for
compliance, examination, and enforcement at a reasonable cost in
both financial and privacy terms." Notably, Incoming Chair
Atkins has expressed support for overhauling the SEC's
enforcement methods and noted off-channel communications
investigations is an area where the agency has overstepped its
bounds.
Looking ahead, we expect the SEC's enforcement activity
regarding off-channel communications will diminish relative to
other enforcement priorities and the agency will no longer continue
to conduct industry sweeps for record keeping violations. The SEC
may also provide more clarity on the types of record-keeping cases
it considers as meriting enforcement action.
d. Individual Accountability
Individual accountability remained a pillar of the SEC's
enforcement program in 2024, and is expected to remain a focus into
2025. The SEC obtained 124 orders barring individuals from serving
as officers and directors of public companies, the second highest
number in a decade. In one specific case, it obtained a verdict
against an individual for over $200 million in disgorgement and
civil penalties. And there are signs that holding individuals
accountable will become even more of a focus in 2025. Incoming
Chair Atkins has consistently suggested it is more appropriate to
pursue individuals responsible for the securities violations rather
than firms for oversight issues that may have led to such harm,
based on his belief that pursuing the firms doubly harms investors.
Industry analysts have commented that unlike Gensler, who was
willing to go after firms for negligence, incoming Chair Atkins
thinks there should be willful intent for the SEC to get involved.
This suggests that the SEC's focus will be on serious cases in
which there is both injury to investors and evidence of conduct
involving at least recklessness by individual executives rather
than the failure of a company to follow policies or
procedures.
Further, as noted above, incoming Chair Atkins and the Trump
Administration have expressed concern about large penalties imposed
on companies because such penalties are ultimately passed on to
shareholders who were not responsible for the company misconduct.
We expect the SEC in 2025 to continue vigorously pursuing
individuals who have committed violations of securities laws.
e. Artificial Intelligence
As artificial intelligence continues to rapidly increase in
wide-spread usage and capability, the SEC continues to focus on
AI-related misrepresentations by regulated entities. This emerging
area of enforcement targets so-called "AI washing," or
overstatements or other misrepresentations regarding the use or
capabilities of artificial intelligence to promote a product or
service.
In 2024, the SEC charged China-based investment adviser QZ
Asset Management for allegedly falsely claiming that the company
would use proprietary AI-based technology to generate
"extraordinary" weekly returns, while also promising
"100% protection" for client funds. The case is currently
pending in the U.S. District Court for the District of South
Dakota.
The SEC also settled charges against two investment
advisers: one firm, Delphia, claimed to have an AI tool that could
predict which companies and trends were "about to make it big
and invest in them before everyone else," but did not actually
have such AI capabilities. The other adviser, Global Predictions,
falsely claimed to be the "first regulated AI financial
adviser" and misrepresented that its platform provided
"AI-driven" forecasts. Another settlement involved charges against the company
Rimar Capital, its owner and CEO, and a board member. The SEC
alleged that Rimar and the individuals "lured" investors
and clients using fabrications and "buzzwords" regarding
the use of AI.
In 2025, the SEC has already settled charges against yet another company,
Presto Automation. The company allegedly made false and misleading
statements about its flagship AI product Presto Voice, which uses
AI-assisted speech recognition to automate certain aspects of
drive-through ordering, in SEC filings and public statements.
Specifically, the company failed to disclose that the AI technology
used in Presto Voice for a period of time was actually owned and
operated by a third party. It also falsely claimed that its product
eliminated the need for human intervention in order-taking.
We expect "AI washing" to continue to be at the forefront
of the Commission's enforcement efforts, given the
pervasiveness of artificial intelligence across all industries.
f. Climate Disclosures
On March 6, 2024, the SEC adopted the Enhancement and
Standardization of Climate-Related Disclosures for Investors rule.
This rule requires information about a registrant's
climate-related risks that have materially impacted, or were likely
to materially impact, its business strategy, results of operations,
or financial condition. Now, nearly a year later, the rule is
likely no more. On February 11, 2025, acting SEC Chairman Uyeda
released a statement criticizing the rule as deeply
flawed and capable of inflicting significant harm on capital
markets and the economy, and directed the agency to request a pause
in litigation concerning the rule currently pending in the Eighth
Circuit. As a result, we expect that aggressive regulation and
enforcement activity related to climate disclosures will no longer
go forward.
Nevertheless, readers should not rule out the possibility of
continued "greenwashing" cases. In late 2024, the SEC
continued to charge companies and individuals for making
misstatements related to environmental and sustainability factors.
While incoming Chair Atkins may not be as focused on enforcement of
Environmental, Social, and Governance rules directly, his SEC may
still bring enforcement actions in the right circumstances where
companies fraudulently tout their environmental credentials.
g. Proactive Compliance Mitigates Penalties
In fiscal 2024, the SEC demonstrated that it would reward market
participants for self-reporting, promptly undertaking remedial
measures, and meaningfully cooperating with the agency. Public
companies, investment advisors, and broker dealers that promoted a
culture of proactive compliance were credited by the Division. In
fact, the SEC approved multiple resolutions imposing reduced or
even no civil penalties for entities that took these steps in
matters involving a broad array of alleged violations such as
fraud, recordkeeping violations, and material misstatements. In one
case involving Cloopen Group Holding Limited, a Chinese cloud-based
communications provider, the SEC chose not to impose civil
penalties after the company proactively self-reported accounting
matters, meaningfully cooperated with the agency during the
investigation, and undertook remedial measures. In response to
Cloopen Group Holding Limited's measures, Gurbir
Grewal—the former Director of the Division—highlighted
how this demonstrated the "real benefits to companies that
self-report their potential securities law violations, assist
during [an] investigation, and undertake remedial measures."
Further, the SEC announced that several defendant firms that
self-reported their violations received significantly lower civil
penalties. In fact, in December 2024, the SEC refrained from
imposing civil penalties against a publicly traded biotechnology
company that self-reported, proactively remediated, and
meaningfully cooperated with the Division.
It remains to be seen whether the SEC will continue to provide
substantial incentives to companies who self-report securities
violations in 2025. Former Chair Gensler fostered a culture of
self-reporting and cooperation throughout his tenure with the SEC.
The new Administration promises to be more business friendly,
suggesting that the change in Commissioners is unlikely to cause
the Commission to pull back on efforts to provide incentives to
companies that self-report violations.
III. SCOTUS Curbs the SEC's Enforcement Power through Two Monumental Decisions
Two Supreme Court decisions from the last term loom large over the SEC's enforcement powers entering 2025. In SEC v. Jarkesy, the Supreme Court held that the Seventh Amendment entitles defendants to a jury trial in cases where the SEC seeks civil penalties. And in Loper Bright Enterprises v. Raimondo, the Supreme Court overruled courts' longstanding deference to agencies in their interpretation of federal statutes. Both cases signal a trend of reduced agency authority and present significant challenges to the SEC's expansive view of its regulatory power regarding what it can require companies to disclose in financial statements to how it interprets its authority to prosecute and settle cases.
a. Jarkesy
In Jarkesy, the Supreme Court agreed
that the SEC's in-house adjudication process violated
defendants' right to a jury trial where the SEC pursued civil
penalties designed to punish or deter the wrongdoer. This decision
calls into serious question the SEC's ability to pursue
financial remedies and disbarments in its in-house administrative
proceedings customarily used by the SEC to adjudicate enforcement
actions. Requiring that more enforcement actions be filed in
federal court will require additional resources, potentially
limiting the total volume of enforcement actions the SEC will bring
in 2025.
Jarkesy's ramifications may be even more daunting for
the Public Company Accounting Oversight Board ("PCAOB").
The PCAOB, a creature of the 2002 Sarbanes-Oxley Act, conducts
investigations and brings disciplinary proceedings against
registered public accounting firms and associated persons. Unlike
the SEC, however, the PCAOB has no statutory authority to commence
enforcement proceedings in federal court, resulting in the PCAOB
conducting its disciplinary proceedings in-house. Despite
Jarkesy concerning just the SEC, its holding seems equally
applicable to the PCAOB's in-house disciplinary proceedings. In
fact, targets of PCAOB in-house disciplinary proceedings have
already commenced constitutional challenges against the Board,
seeking to enjoin those proceedings from moving forward.
b. Loper Bright
In the Loper Bright case, the Supreme Court overruled the long-standing Chevron doctrine, which required judicial deference to agency interpretations of ambiguous statutes, ruling instead that courts must engage in their own independent statutory construction of ambiguous statutes. This decision represented a major blow to agencies' authority, including the SEC. Indeed, while Loper Bright involved a different federal agency's actions, its holding is broad enough to implicate the SEC's enforcement powers. Under the Loper Bright holding, which requires courts to undertake an independent assessment of an agency's interpretation of a statute, all agency action is far more vulnerable to review, and, ultimately, reversal. As a result, agencies like the SEC might engage in a slower rule promulgation process to develop a fuller record on which the agency can defend its actions in the face of challenge.
IV. A Look Back at Fiscal Year 2024
Despite the sea change expected at the Commission in 2025, it is
nevertheless worthwhile to take stock in how Enforcement performed
in fiscal year 2024. The Division announced that it initiated 583
total enforcement actions in fiscal year 2024 (a 26% decline from
fiscal year 2023), while obtaining orders for $8.2 billion in
financial remedies. Of the total enforcement actions filed, the
Commission filed 431 "stand alone" actions (i.e.,
enforcement actions excluding those brought against issuers for
delinquent filings and "follow-on" administrative
proceedings seeking bars against individuals, a 14% decrease from
fiscal 2023); 59 actions against issuers for delinquent filings (a
51% decrease from fiscal year 2023); and 93 "follow-on"
administrative proceedings (a 43% decrease from fiscal year 2023).
The $8.2 billion collected represents the highest amount recorded
in SEC history and consists of $6.1 billion in disgorgement and
prejudgment interest and $2.1 billion in civil penalties. More than
half of that $8.2 billion came from the monetary judgment the SEC
secured following its jury trial win against Terraform Labs and Do
Kwon, its principal, who were both charged with one of the largest
securities frauds in U.S. history. The SEC returned $345 million to
harmed investors in fiscal year 2024, marking more than $2.7
billion returned to investors since the start of fiscal year
2021.
The SEC reported receiving 45,130 tips, complaints, and
referrals in fiscal year 2024, the most the SEC has ever received
in one year. This figure includes more than 24,000 whistleblower
tips. The SEC, in turn, issued whistleblower awards totaling $255
million. The Commission also authorized a series of settled
enforcement actions to address violations of the Dodd-Frank
whistleblower protection rule, which prohibits market participants
from taking retaliatory actions against whistleblowers for
contacting the SEC.
***
While 2024 was a robust year for enforcement, we expect that 2025 will still be a busy year for the SEC. We anticipate the SEC will shift toward other enforcement priorities and potentially signal new substantive guidance in areas such as crypto enforcement while recalibrating in other areas, such as financial statement disclosure requirements and record keeping requirements. We also expect the SEC to continue to look at individual conduct in financial fraud and insider trading cases. We will continue to provide updates as the year progresses.
Originally published by 20 February 2025
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