The Acting Chair of the U.S. Securities and Exchange Commission recently moved to limit who at the SEC can authorize the issuance of subpoenas. The abrupt change, which the SEC did not announce publicly, removes the ability to issue subpoenas from approximately 20 senior officials in the SEC’s Enforcement Division–limiting that power to just the Director of that division.
Paired with other actions taken by Acting Chair Michael Piwowar, including putting unfinished rules required by the Dodd-Frank Act on hold and questioning the need for some existing rules, the action has raised concerns as to whether the SEC will pare back its enforcement of the federal securities laws in the coming years.
Prior to 2009, the issuance of a formal order of investigation authorizing a subpoena required approval by the SEC’s five Commissioners. The delegation of subpoena power in 2009 was aimed at streamlining investigations in response to the financial crisis, the Madoff Ponzi scheme, and other enforcement concerns. That year, the number of formal orders of investigation reportedly doubled, from 233 to 496, and grew to 681 in 2016, underscoring the potential impact of limiting subpoena authority. Funneling all requests for subpoena approval through the Enforcement Director will likely add delays to already-lengthy SEC investigations and enforcement actions, as it will take time for the Enforcement Director to review and consider the many subpoena requests.
President Trump named Piwowar Acting Chair of the Commission on January 23, 2017. No more than three of the five SEC Commissioners may be members of the same political party, and Piwowar had previously been appointed by President Obama as one of the Republican Commissioners. Piwowar will lead the SEC while the nomination of Jay Clayton for Commission Chair remains pending. Clayton, a longtime corporate lawyer at Sullivan & Cromwell who has represented numerous Wall Street clients and whose wife works at Goldman Sachs, will appear before the Senate Banking Committee on March 23rd.
Currently, only two SEC Commissioners are seated, Piwowar and Democrat Kara Stein, also an Obama appointee. The remaining three Commissioner positions are vacant. Stein’s term ends this year, while Piwowar has two years left in his. Upon pending-Chair Clayton’s likely confirmation, Piwowar will have ample time to convince Clayton to retain the subpoena power limitation that Piwowar himself put into place as Acting Chair.
In fact, Piwowar and Clayton could even further restrict subpoena power to pre-2009 conditions, where the then-operative rule required approval by the Commissioners themselves for all subpoenas. While Acting Chair Piwowar currently cannot unilaterally revoke subpoena power from the Enforcement Director without approval by a majority of Commissioners, as Commissioner Stein is seen as unlikely to agree to such a change, once Jay Clayton is confirmed as Chair, he and Piwowar could then vote to further constrain subpoena power to those pre-2009 conditions.
This change fits with the Trump Administration’s stated goals of scaling back enforcement actions and re-directing the Commission’s focus toward rolling back and simplifying rules and regulations. However, such a potentially draconian limitation on the authorization of subpoenas on the horizon–along with a reduction in enforcement actions–underscores, if not escalates, the vital necessity of private enforcement by institutional investors to ensure free, fair, and open markets.