TheCorporateCounsel.net

Reuters reported last week that SEC Enforcement Staff was told that they need Commission approval before formally launching investigations. As noted in this Paul Hastings memo, a formal order of investigation is needed before the Enforcement Staff can subpoena testimony or documents.

Currently, there are three SEC Commissioners, and two of them have publicly dissented from a number of enforcement actions over the past few years. Unlike the Consumer Financial Protection Bureau, it doesn’t look like the SEC is halting all of its efforts and facing annihilation. The SEC’s Enforcement Division will still conduct investigations. But those endeavors likely will have more guardrails. The Paul Hastings team gives more color:

This action could be a precursor to the SEC rescinding a 2009 SEC rule that delegated authority to issue a formal order of investigation to the SEC’s director of Enforcement and other senior officers of the Division of Enforcement.

Before 2009, the Commission approved formal orders of investigation after the Enforcement staff prepared a memorandum for the Commission summarizing the facts and the possible securities law violations.

The scope of delegation authority has fluctuated since the 2009 rule. Most recently, as of 2021, senior Staff including regional directors and associate regional directors have had the authority to open formal investigations.

The memo goes on to summarize the attributes of pre-2009 practices that could apply if this authority has been rescinded. In those days, Enforcement Staff would seek information on a voluntary basis – which was less costly & intrusive for companies. The Commission’s involvement at the early stage of the formal investigation helped guide the direction of the case.

– Liz Dunshee