Reversing Trump-Era Policy, SEC Authorizes Enforcement Staff to Launch Investigations

A recent move by the U.S. Securities and Exchange Commission (SEC) suggests the agency will be more aggressive with its enforcement efforts under the Biden administration. On February 9, SEC Acting Chair Allison Herren Lee announced she was reauthorizing senior officers in the Division of Enforcement to approve the issuance of Formal Orders of Investigation. This means that the number of people who can approve investigations is greatly expanded. The decision should increase the number of investigations launched by the SEC, which should correspondingly lead to more enforcement actions and more rewards paid to whistleblowers.

The authority to issue Formal Orders of Investigation allows senior enforcement staff to issue subpoenas and take sworn testimony. At the beginning of the Trump administration, then-Acting Chair Michael Piwowar stripped enforcement officials of this authority. Piwowar’s move contributed to a decrease in new investigations launched by the SEC every year over the course of the Trump administration, according to The Wall Street Journal. The SEC undertook 1,063 investigations in 2016 and only 640 in fiscal year 2020.

Piwowar’s decision to strip enforcement officials of this authority was part of an overarching shift towards a less aggressive Enforcement Division during the Trump administration. Acting Chair Lee’s decision to reauthorize officials to open investigations and the nomination of Gary Gensler to be the next SEC Chair suggest a reversal of this trend under President Biden.

“This delegation of authority will enable investigative staff to act more swiftly to detect and stop ongoing frauds, preserve assets, and protect vulnerable investors,” said Acting Chair Lee. “Returning this authority to the division’s experienced senior officers, who have a proven track record of executing it prudently, helps to ensure that investigative staff can work effectively to protect investors in an era when the pace of fraud – like the pace of markets themselves – is ever more rapid.”

This move means that whistleblower tips should develop into investigations more frequently and more quickly. This is a particularly welcome sign for whistleblowers, considering that the decision comes at a time when the prevalence of remote work and the publicized success of the SEC Whistleblower Program have led to an immense uptick in whistleblower tips to the agency. The SEC received a record 6,900 whistleblower tips in the 2020 fiscal year – a 31% increase over the previous record. Whistleblower tips were received from individuals from all 50 U.S. states and 78 foreign countries.

The Division of Enforcement has been vocal about the important role whistleblowers play in their enforcement efforts. As of October 1, 2020, $2.7 billion in total monetary sanctions have been triggered by whistleblower disclosures since the SEC Whistleblower Program was established in 2010.

The move also comes in the midst of a record-setting fiscal year for the SEC Whistleblower Program. Since the 2021 fiscal year began on October 1, 2020, the SEC has awarded over $176 million to 28 individuals – the largest total dollar amount awarded to whistleblowers in a fiscal year. Additionally, the specifics of recent whistleblower awards have further highlighted the SEC’s commitment to rewarding whistleblowers

Read:

Statement of Acting Chair Allison Herren Lee on Empowering Enforcement to Better Protect Investors

Coverage of the SEC Whistleblower Program

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