What to Expect from the SEC During a Second Trump Administration?

Given the recent news about President-Elect Trump’s cabinet appointments , it is a safe bet that the SEC Division of Enforcement’s priorities will change under the new administration. Under President Biden, SEC Chair Gary Gensler pursued a broad and aggressive enforcement agenda, with critics contending that the SEC pursued regulation via enforcement in areas like crypto currencies and digital assets, ESG, cybersecurity, and AI. If the dissents from Republican Commissioners Hester Peirce and Mark Uyeda are predictors, a Republican-appointed SEC chair is expected to pare back the scope of the SEC’s enforcement agenda, including its pursuit of controls violations, and, perhaps, return the agency to “bread and butter” securities enforcement. With the heavy caveat that much will depend on the next SEC chair’s enforcement priorities, here are our preliminary predictions for what to expect from SEC Enforcement going forward.

Cryptocurrencies and Digital Assets

On the rulemaking side, we expect the Trump SEC to either propose new regulations applicable to cryptocurrencies and other digital assets or cede enforcement territory to the CFTC. Under SEC Chair Gensler, the SEC used longstanding securities laws—primarily the Securities Act of 1933—to sue many crypto companies and exchanges for conducting unregistered securities offerings absent allegations of fraud or harm . Republican Commissioners Peirce and Uyeda have been publicly critical of this enforcement approach, arguing that a new regulatory framework is needed for the digital asset and Fintech space. Traditionally, although new administrations have not voluntarily dismissed existing litigation, we expect the SEC to bring fewer crypto enforcement actions and potentially to seek off-ramps for the more controversial cases currently being litigated.

A move away from regulation by enforcement toward the promulgation of new regulations could cause the SEC to face its own challenges, given recent Supreme Court precedent. Following Loper Bright Enterprises v. Raimondo, federal court judges can no longer defer to the SEC’s interpretations of its regulations, including concerning any new digital asset rules, and must analyze agency regulations independently. And the Supreme Court’s decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System will mean that any SEC, CFTC, or other agency rulemaking concerning digital assets may be susceptible to legal challenges for the long term. Under that decision, plaintiffs can challenge federal agency actions that have allegedly harmed them within six years of the harm, even if those regulations were promulgated decades before.

ESG

If the SEC’s quiet disbandment of its ESG task force wasn’t a signal, we expect that the SEC will not pursue enforcement related to environmental, social, and governance disclosures alone, absent indicia of fraud, wrongdoing, and harm. This stands in contrast to the SEC’s recent non-fraud ESG action against Keurig Dr Pepper, Inc., which drew a strong dissent from Commissioner Peirce.

Cybersecurity

Using the Republican commissioners’ dissent in a recent cyber SEC action as a guide, we expect that SEC Enforcement will tread carefully in cyber-related matters in the absence of obvious fraud or wrongdoing. Under Chair Gensler, the SEC conducted an enforcement sweep in the wake of the SolarWinds breach, suing companies and one individual with alleged violations. The SEC obtained some high-profile settlements but also suffered an embarrassing reversal when a federal judge rejected certain claims against SolarWinds. The agency also finalized cyber rules for public companies and adopted cyber-related amendments to Regulation S-P that apply to broker-dealers, investment companies, registered investment advisers, and other financial institutions. SEC enforcement will likely hew to these new rules, rather than relying on aggressive new theories.

Artificial Intelligence

Under Chair Gensler, the SEC brought traditional disclosure violations actions in the AI space, including “AI washing” cases against investment advisors that allegedly overhyped their use of AI in investment selection. We expect the agency to continue to investigate disclosure violations with an AI connection, perhaps especially where there is obvious harm to retail investors. Under the first Trump administration, then-SEC chair Jay Clayton focused on harm to retail investors and pursued a record number of cases under the Investment Advisors Act of 1940 for conflicts of interest, undisclosed fees, and other issues.

Controls Violations Less Out of Control?

We expect that the new administration will bring an end to the controls-based enforcement actions that SEC Enforcement pursued under both Chairs Clayton and Gensler. Under the securities laws, public companies need to adopt and follow disclosure, accounting, and other controls and procedures to ensure that material and other required information is disclosed to the market on a timely basis. The SEC used these laws to bring enforcement actions for deficient insider trading controls, cybersecurity controls, and controls in connection with stock buybacks. On the cyber front, the SEC’s use of controls claims met with a roadblock this summer in the SolarWinds litigation, with a federal judge holding that the SEC did not adequately plead an accounting controls violation in the cyber context.

Morrison Foerster’s Securities Enforcement team features seasoned practitioners, including veterans of the SEC’s Division of Enforcement, who advise and represent public companies, financial service providers, and their individuals in securities enforcement and internal investigations and inquiries. For more details on this client alert, or to discuss how these developments may impact your compliance program, please reach out to our team.