Take it to the Top: The SEC Rescinds Its Delegation to the Enforcement Division to Issue Formal Orders

Key Takeaways

• Last week, the Securities and Exchange Commission (“SEC” or the “Commission”) issued a final rule to eliminate a 2009 delegation of authority (the “2009 Delegation”) to the Director of the Division of Enforcement to issue formal orders of investigation, a prerequisite to issuing subpoenas for documents or witness testimony.
• As was required before the 2009 Delegation, Enforcement staff must now obtain formal order approval from the SEC’s Commissioners, who are appointed by the President.
• Prior to issuance of a formal order, the SEC staff can gather information by other means, such as seeking voluntary cooperation. But to issue subpoenas, the staff must now brief decisionmakers at the highest levels of the SEC early in the inquiry and submit a formal order action memorandum to the Commissioners explaining why it is necessary and appropriate to investigate a potential securities law violation. Commissioners thus will have an opportunity to provide feedback on the scope of the investigation, or determine whether the investigation will proceed at all.
• The final rule reduces the pool of SEC personnel with formal order authority from numerous Enforcement supervisors in all SEC offices to the current three Commissioners. A reversion to the pre-2009 process will likely require Enforcement staff to consider whether their request for subpoena authority is consistent with the SEC’s enforcement priorities and could slow the pace of investigations.  

Background

To issue a subpoena for documents or testimony, Enforcement staff must first obtain a formal order.  A formal order authorizes SEC staff “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.”[1] Enforcement staff do not need a formal order to obtain public information, to collect information voluntarily, or to request information from SEC registrants, including broker-dealers, pursuant to Section 17(a) of the Securities Act of 1933. 

Before 2009, the power to issue formal orders rested with the Commission.[2] But in August 2009, after the election of President Obama, the Commission amended its rules to delegate this authority to the Director of Enforcement.[3] The purpose was to “expedite the investigative process by removing the need for enforcement staff to seek Commission approval prior to performing routine functions.”[4] The Director of Enforcement then sub-delegated this authority to “a handful of senior officers in the Enforcement Division, including Associate Directors and Associate Regional Directors.”[5] In 2017, after the election of President Trump, the Commissioners rescinded the sub-delegation but left intact the 2009 Delegation, vesting formal order authority with the Director of Enforcement.[6]

On March 10, 2025, with a 2-1 vote split along party lines, the SEC issued a final rule removing the 2009 Delegation.[7] Going forward, Enforcement staff must seek Commissioner approval for formal orders. The SEC stated that the removal of the 2009 Delegation was necessary to “more closely align the Commission’s use of its investigative resources with Commission priorities.”[8]

Looking Ahead

The final rule eliminating the 2009 Delegation will give the SEC Commissioners a front seat in determining whether the agency’s subpoena power is used in a manner consistent with the SEC’s enforcement priorities. For example, in light of the priorities of the SEC’s Crypto Task Force and the newly formed Cyber and Emerging Technologies Unit, it is unlikely that the Enforcement staff will be able to obtain subpoenas in digital assets matters without some explanation of potential fraud and a clear explanation of why the digital asset at issue is a security. Further, the reduction of the pool of formal order decisionmakers—combined with attempts to reduce the agency’s staff, including with an offer of a $50,000 payment to agency staff in exchange for resignation or retirement—will likely slow the pace of investigations, as staff will now need to submit formal order requests to the Commissioners.[9] Companies and individuals that face voluntary requests from the SEC should consider the risks and benefits of responding to such requests as compared to requesting that the Enforcement staff obtain a formal order.

[1] Section 21(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(b); see also Section 19(c) of the Securities Act of 1933, 15 U.S.C. § 77s(c); Section 42(b) of the Investment Company Act of 1940, 15 U.S.C. § 80a-41(b); Section 209(b) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-9(b).

[2] Securities and Exchange Commission, Delegation of Authority to Director of Division of Enforcement, at 2 (Aug. 5, 2009).

[3] Id.; see also 17 CFR § 200.30-4, Delegation of authority to Director of Division of Enforcement.

[4] Securities and Exchange Commission, Delegation of Authority to Director of Division of Enforcement, at 2.

[5] Securities and Exchange Commission, Memorandum Re Review of Certain Actions Taken by Commissioner Michael Piwowar as Acting Chairman, at 3 (Aug. 24, 2017).

[6] See id.

[7] Securities and Exchange Commission, Final Commission Votes for Agency Proceedings (March 2025) (showing Republican Commissioners Mark T. Uyeda and Hester M. Peirce voted in favor of the final rule, with Democratic Commissioner Caroline A. Crenshaw opposing). If President Trump’s nominee for SEC Chair, Paul Atkins, is approved, this will increase the Republican majority to three to one.

[8] Securities Exchange Commission, Delegation of Authority to Director of the Division of Enforcement, at 1, 3 (Mar. 10, 2025).

[9] The SEC brought an average of 609.8 actions in the ten fiscal years before the 2009 Delegation as compared to an average of 769.3 actions in the ten fiscal years following it. However, this could be due to myriad factors including the 2009 Delegation, budget increases, and increased in Enforcement staff headcount.