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As I read The Shadow SEC’s defense of the SEC’s status as an independent agency, it occurred to me that in today’s politically fraught environment, it’s hard for the SEC or any agency to be truly independent, whether the President can replace its leadership at will or not. For example, just look at what’s transpired at the SEC over the past month or so.

On his way out the door, former SEC Chair Gary Gensler gave a steroid shot to his crypto enforcement team in an effort to ensure that the crypto crackdown continued after his departure. Then, during the final week of Biden’s presidency, the SEC decided to file an enforcement action against Elon Musk for alleged Section 13(d) violations.

I’m firmly in the camp of those who believe that Elon Musk thinks he’s above the law and should be held to account, but the optics of an 11th hour decision like this couldn’t be worse.  In fact, Bloomberg Law is reporting that this decision looked so bad that it prompted Commissioner Uyeda to take the extraordinary step of asking Enforcement staffers if they were willing to sign off on a statement that their recommendation to pursue an action against Musk was not politically motivated.  (That’s not a great look either.)

After Trump’s inauguration, the SEC immediately put the kibosh on the climate change rules and responded to Gary Gensler’s efforts to install a “dead hand pill” for his crypto crackdown by replacing the agency’s existing crypto & cyber unit and, more notably, exiling its top crypto litigator to Siberia. Of course, all of this came on the heels of years of Commission actions in which we’ve usually been able to count on important policy issues being decided by a 3-2 party line vote.

After an extended period of this kind of partisan tug of war at the SEC, it’s a little hard not to raise an eyebrow when members of The Shadow SEC say things like if the SEC wasn’t independent, “[c]oncentrated interest groups can be expected to pressure each new administration to change regulation in ways that might not be in the interest of investors and the public and that might not enhance capital formation.”  C’mon – seriously? I mean, have these folks been paying attention to anything that’s happened at the SEC over the past decade or so?

I think the basic problem isn’t the leadership at the SEC or other independent agencies, it’s that Congress’s sclerotic legislative process has put these people in an untenable position. As I’ve previously blogged, the simple truth is that Congress can’t get its legislative act together, so whatever party controls the White House will continue to push the people running federal agencies to accomplish what really should be legislative objectives. Until that’s addressed, a lot of agency actions are going to look highly partisan and pretty far from anyone’s idea of “independent.”

– John Jenkins