The SEC is now requiring its lawyers to obtain top-level approval before formally launching an investigation, according to two sources familiar with the matter who spoke to Reuters on condition of anonymity.
The new requirement mandates that enforcement staff must secure permission from politically appointed commissioners to issue subpoenas, demand documents, and compel testimony.
Previously, staff members had the authority to initiate formal investigations independently, though SEC commissioners maintained oversight of the process.
The change follows leadership transitions at the SEC, including the departure of former chair Gary Gensler and Democrat Jaime Lizárraga last month. President Donald Trump appointed Mark Uyeda as Acting Chair, with the commission currently operating with three commissioners: Uyeda, Hester Peirce, and Caroline Crenshaw.
According to Tyler Warner, a former banking consultant turned NFT market analyst, the new system will prevent “rogue attacks.” SEC commissioners will be more discerning and less likely to approve investigations without solid evidence.
On the flip side, this procedure change may come with the risk that legitimate cases of fraud will be missed or delayed. “Too early to call it net positive or negative, [though] I lean positive,” he added.
Under the previous administration, the SEC required approval from its two enforcement directors to formally launch probes. The sources did not specify whether the Commission formally voted to revoke the previous delegation of authority.
Enforcement staff can continue conducting informal investigations without commissioner approval, including sending information requests.
Under Gensler’s leadership, the SEC increased regulatory actions against major crypto exchanges, focusing on allegations of fraud and securities law violations. This approach drew criticism from both the crypto sector and some lawmakers, including Democrats who argued that Gensler’s interpretations of securities laws were overly broad and vague.
Gensler maintained that the SEC’s role was crucial in protecting investors from potential frauds and scams prevalent in the crypto space. However, his critics argued that this perspective led to a heavy-handed approach that could be seen as a war on crypto, raising concerns about whether such actions were justified or excessively punitive.
Marc Fagel, a retired attorney specializing in SEC enforcement and securities litigation, said that the change was a step backward, making investigations slower and ultimately benefiting those committing fraud.
“Having been personally involved in the original effort to delegate formal order authority, I can say this is a dumb move that will do nothing but make already slow investigations take even longer. Great news for anyone committing fraud,” he said.
