As discussed in this PubCo post, in February, Reuters reported that, under the new Administration, some SEC Enforcement staff have recently “been told that they will need to seek the Commission’s approval for all formal orders of investigation, which are required to issue subpoenas for testimony or documents,” marking a “change in procedure that could slow down investigations.” Previously, Reuters reported, authority to formally launch investigations had been delegated to Enforcement directors or other senior staff, including even supervising attorneys; during the first term of the current Administration, the “SEC required approval by its two enforcement [co-]directors to formally launch probes.” Now, that change in authority has been formalized: the SEC has amended its regulations to eliminate the delegation of authority to the Director of the Division of Enforcement to issue formal orders of investigation. That is, the SEC itself must approve these orders. The SEC release indicates that the amendment “is intended to increase effectiveness by more closely aligning the Commission’s use of its investigative resources with Commission priorities.”
According to the release, the SEC is authorized under the Federal securities laws to investigate possible violations of those laws. The Federal securities laws provide that “any member of the Commission or any officer designated by it is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, or other records which the Commission deems relevant or material to the inquiry.” The SEC “issues formal orders of investigation that authorize specifically-designated enforcement staff to exercise the Commission’s statutory power to subpoena witnesses and take the other actions” described above. Note, however, that the staff will still be able to conduct informal investigations and request that documents be provided voluntarily. Because, under the APA, the “amendment relates solely to agency organization, procedure, or practice,” the APA’s notice-and-comment provisions did not apply. Accordingly, the amendment became effective on publication in the Federal Register on March 14, 2025. Bloomberg reports that, in an emailed statement, an SEC spokesperson maintained that “[t]he Division of Enforcement operated for 40 years without delegated authority….We are returning to how the Division operated for most of its existence, ensuring the Commission has the utmost insight into the cases we bring throughout the process.”
In August 2009, the SEC delegated authority to issue formal orders of investigation to the Director of Enforcement—a move that Bloomberg attributes to failure of the SEC to prevent “Bernie Madoff’s Ponzi scheme” as well as “broader charges of acting sluggishly”—and subsequently extended that authorization beyond its original one-year timeframe. This new amendment will eliminate that delegation provision “to more closely align the Commission’s use of its investigative resources with Commission priorities.” Bloomberg observes that, under the new Administration, the SEC is “widely expected to target traditional fraud rather than disclosure-based infractions.”
According to Reuters, former SEC co-director of enforcement, Steven Peikin, speaking on a panel, had previously commented that he thought it was “a huge waste of commission resources to be focused on formal order authority.” Peikin told Bloomberg that the SEC’s “decision to revoke delegated authority appears to reflect a desire for it to be more involved in the allocation of resources by the enforcement division…For the past 15 years, the delegation of authority reflected a general deference to the staff’s decision of what matters to investigate….This change reflects a move in the other direction.” According to Bloomberg, Melissa Hodgman, former associate director of Enforcement, contended that “[s]tripping the enforcement director of the delegated order authority may have the unintended consequence of shifting more investigations toward regulated entities that are already required by the SEC to respond to information requests.” Akita Adkins, a former Enforcement senior counsel, told Bloomberg that the SEC, “by removing sub-delegated and delegated authority, does get earlier insight into what types of investigations are being conducted and early ability to weigh in on whether formal order authority should be granted….I do think there is a change in terms of whose desk it lands on, but there is still a requirement that the staff, in seeking a formal order, write a memo detailing the reasons for seeking formal order authority and the alleged violations of federal securities laws they believed to have occurred.”
