Key Takeaways | 2024 Enforcement Outlook | SEC Enforcement: Key Updates and Trends

The recent US election will reshape the enforcement agenda of the US Securities and Exchange Commission (SEC). During this webinar, McDermott partners and former SEC lawyers provided new insights into what companies should focus on with the incoming administration.

Top takeaways included:

1. The SEC Will See New Leadership and Priorities. President-elect Donald Trump has selected former Commissioner Paul Atkins to lead the SEC. He will replace Chair Gary Gensler, who has announced he will step down on January 20, 2025. Atkins served as a commissioner from August 2002 to August 2008 and was on the staff of two former chairs in the early 1990s. As chair, he will select new directors for each of the divisions, including the Division of Enforcement. This leadership change is expected to shift the Commission’s priorities. We anticipate increased attention on retail-level fraud and an emphasis on pursuing enforcement actions where there is tangible harm to investors, with less emphasis on penalties and more on disgorgement and returning money to harmed investors.
2. We Expect a Decline in Crypto and ESG Enforcement Actions. Under Chair Gensler, the agency took an aggressive approach to enforcement matters involving cryptocurrencies and digital assets. We expect to see a dramatic reversal of this trend, with a shift toward proposing rules that provide better guidance. Additionally, the Commission is unlikely to favor environmental, social, and governance (ESG) regulation and enforcement. For instance, the SEC’s current leadership promised to “vigorously defend” its final rules governing the complex climate reporting regulations that have been stayed pending a court challenge. The incoming SEC is unlikely to share the same desire to “vigorously” defend these rules – if it chooses to defend them at all.
3. Cybersecurity Will Remain a Priority. While we do not expect the same level of enforcement activity against companies that are victims of cybersecurity breaches, we anticipate the SEC will continue to monitor compliance with the recently implemented public company cybersecurity disclosure rules. These rules require companies to disclose material cybersecurity incidents within days. A rollback of these provisions is unlikely, given that cybersecurity tends to be a bipartisan issue affecting national security. Companies should consider (i) updating their cybersecurity incident plans to incorporate the new Form 8-K disclosure guidelines if they have not done so already; (ii) reassessing or updating risk factor disclosures; and (iii) as a practical matter, ensuring that gatekeepers in disclosure roles are working in tandem with technical cybersecurity personnel.
4. The Agency Will Continue to Rely on Data Analytics to Generate Cases. We anticipate a continued increase in the use of data to uncover potential violations of the securities laws. For example, the SEC’s impressive analytical capabilities and the Consolidated Audit Trail (CAT) will continue to enhance the staff’s ability to detect insider trading. Despite criticism of CAT and calls to terminate the program in Project 2025, we expect the SEC to continue relying on data analytics and expanding its enforcement of insider trading.

McDermott’s Enforcement Outlook webinar series is designed to keep you up to date on the enforcement trends that might impact your organization’s compliance strategy. For more materials related to past episodes, visit our Enforcement Outlook Series hub.