The SEC Clears the Decks
Summary: Chairman Atkins announced that “Policymaking will be done through notice and comment rulemaking, not through regulation-by-enforcement.” Since January, the SEC has fundamentally recalibrated its enforcement program.
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Most notably for investment advisers, the SEC withdrew the Safeguarding Rule (the proposed replacement for the Custody Rule), rules requiring disclosure of ESG practices, rules on outsourcing to service providers, cybersecurity risk and breach rules, and rules concerning predictive data analytics that covered AI-related conflicts.
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On June 11, the SEC extended the compliance date for the new Form PF, ending speculation on what the Atkins Commission would do with the highly criticized amendments. Most importantly, the Commission signaled that it would consider further changes to the Form, with Commissioners questioning whether the burdens of compliance with the new Form are worth any potential benefits.
Takeaway: The Commission is executing its stated pivot toward streamlining capital formation and away from the intense regulation of the Gensler era. We expect the Commission to continue with its red tape cutting initiatives, and will be closely following where the Commission lands on Form PF.
Best Practice Tip: Revisit any disclosures included to address the proposed rules. Maintain efforts to comply with the new Form PF by the new compliance date but expect that recent amendments to Form PF will not survive in their current form.
Setting the Stage for Asset Managers
Summary: On June 13, Brian Daly was named the new Director of Investment Management and Jamie Selway was named Director of Trading and Markets. Daly is a veteran of private practice in the investment management space, formerly a partner at both Akin Gump and Schulte Roth law firms. Daly replaces Natasha Vij Greiner, who executed the Chair’s mission under both Gensler and Atkins. Selway is experienced in market structure and institutional trading across multiple asset classes. Selway commented that he looks forward to “enable[ing] innovation, to the benefit of our nation’s investors.”
Takeaway: Both Daly and Selway are new to the Commission and bring a market-driven perspective shaped by years in the industry, including in the digital assets and cybersecurity areas. As the Commission works to expand retail access to alternative assets, Daly’s experience advising private fund managers and Selway’s FinTech experience will likely shape expected changes to the regulatory framework. These personnel changes set the stage for a Commission that favors industry flexibility and more modest oversight.
Best Practice Tip: Daly and Selway will assume their roles in a matter of days so gear up for important speeches and industry engagement that will provide clues to specific priorities for registered entities. To the extent there is uncertainty under the rules during this transition period, consider erring on the side of seeking no-action guidance to protect against a potential enforcement action down the line.
Signs of Life on the Enforcement Front
Summary: As reported in June, Enforcement Staff levels have been cut to historic lows with no plans of increasing. Instead, the SEC’s 2026 budget proposal indicates an intent to further cull the agency’s headcount. Not only this, the proposed budget reflects an Enforcement headcount that dips to levels not seen since 2010.
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That said, dormant investigations have rumbled back to life and a flurry of enforcement actions were announced. Notably those involving asset managers, such as Nagler/New Line Capital and North East Asset Management, reflect bread and butter actions. Both involve allegations that these managers defrauded investors resulting in direct monetary harm to their clients.
Takeaway: Despite the uptick in activity, the industry continues to wait for the announcement of a new Director of Enforcement. Until one is named, it will be hard to definitively know where the Enforcement Division’s specific priorities will lie, although the next few years will unquestionably be a period of restraint (fewer sweeps, lower penalties) relative to the prior Commission.
Best Practice Tip: As Enforcement begins to re-engage, stalled investigations that remain quiet may warrant some cautious optimism that they are potential candidates for termination. Prep now to position open regulatory matters for closure if the Staff resurfaces and keep an eye out for the next SEC Watch.
SCOTUS Leaves Disgorgement Question to the Circuits—For Now
Summary: In SEC v. Navellier & Associates, the defendant asked the Supreme Court to consider whether the SEC may seek and federal courts award monetary disgorgement for investors who have not suffered any pecuniary harm. The petition arose out of a 2024 1st Circuit decision holding that the SEC and the courts may. Defendant argued this creates a circuit split with the 2nd Circuit which held the opposite. SCOTUS declined to take up the case, denying Navellier’s cert petition on June 6.
Takeaway: As case law develops across the circuits—or until SCOTUS decides to weigh in—the forum in which the Commission brings enforcement actions where it cannot show pecuniary harm to investors will take on an outsized importance.
Best Practice Tip: When considering settlement options in ongoing enforcement investigations, take stock of the existing precedent in your jurisdiction and whether courts have opined on the permissibility of awarding monetary disgorgement in cases that lack an investor harm element.