WMHW Alert: SEC Enforcement Trends In The First Six Months

Shortly after his swearing in as Chairman of the Securities and Exchange Commission ("SEC" or "Commission"), Chairman Paul S. Atkins described in several public statements a new direction for the SEC. Many of his statements applied to SEC Enforcement: a mandate to pursue clear cut violations, avoid "ad hoc" enforcement based on novel legal theories, and return to the SEC's core mission with an emphasis on traditional fraud, holding accountable "those who lie, cheat, and steal." Discussing the SEC's new direction in a May 2025 WMHW Alert, we predicted "that the SEC will be more open to views from the private sector" but warned that "[b]usinesses should not misconstrue the Commission's new approach as a green light to give short shrift to Compliance functions, disclosure requirements, or vigilance especially toward fraud."¹

What has Chairman Atkins' first six months revealed about these enforcement objectives? In large part, the SEC's enforcement program has been very consistent with them. As Chairman Atkins declared, it is "a new day at the SEC," with fewer enforcement actions,² but ones involving "bread-and-butter" issues and demonstrable harm to investors.The Commission has initiated far fewer cases compared with the same period under its predecessor Gensler Commission, and has looked askance at prior "enforcement actions in areas, such as retention of books and records, that consumed excessive Commission resources not commensurate with any measure of investor harm."⁴ At the same time, the SEC has reaffirmed its priority of focusing on core regulatory areas involving offering fraud, misstatements, insider trading, and violations of fiduciary duty by investment advisers.

What does this suggest for the future (once the government shutdown ends)? As Chairman Atkins recently explained, it likely will be "a new day at the SEC,"⁵ at least compared with the aggressive posture pursued by the Gensler Commission. That said, as time progresses, Staff cuts end, and new senior officials settle into their roles, the Atkins Commission's enforcement program may very well end up resembling those of many Commissions over the past twenty years, prior to the recent tenure of Chairman Gensler.

Fewer Standalone Enforcement Actions

Chairman Atkins disagrees that the number of cases the Commission files in a particular fiscal year is a proper metric of a successful enforcement program. In a recent speech, he observed that "[i]f we reward the staff only for bringing enforcement actions, then we have discouraged the staff from determining not to recommend an enforcement action."⁶ Consistently, in his first six months as Chairman, the SEC has brought fewer cases than in the past. Consider the SEC's typical trend of announcing a disproportionate burst of enforcement cases each September, the end of the SEC's fiscal year. As commenters have noted, this was not so for September 2025.⁷ That month, the SEC filed fewer than 50 standalone administrative proceedings and enforcement actions – dramatically fewer than the 200-plus standalone administrative proceedings and enforcement actions the SEC announced a year earlier, during September 2024.⁸ The SEC has not published its fiscal 2025 enforcement statistics. But our high-level review for the six-months between April 1, 2025 and September 30, 2025 indicates that the SEC has brought approximately 75 new civil actions and stand-alone administrative proceedings combined, with approximately 55 of those brought in federal district court and 18 brought as administrative proceedings – numbers that are very likely to be lower than in fiscal 2024.

Why fewer enforcement actions now? We see the confluence of four factors. First, the commissioners have exercised their influence to take a more discerning approach to the types of enforcement actions the Staff investigates and recommends. In March the Commission rescinded the delegated authority that the SEC Staff possessed during the Gensler Commission to issue formal orders of investigation.⁹ This means that every formal investigation must now begin with Commission review and approval. Second, many enforcement lawyers have accepted the administration's early retirement or buyout offers resulting in fewer Staff to work on investigations. Third, we perceive a general uncertainty among the enforcement Staff about evolving Commission priorities. Finally, consolidation and turnover among senior enforcement staff, and delays in appointing an enforcement director, may well have slowed matters.

Emphasis on Retail Fraud

Many of the SEC's recent cases involve offering fraud, where defendants deceive investors in often unregistered securities offerings, commingle investor funds, and perpetrate Ponzi schemes. But is this old wine in a new bottle? Offering frauds have always been a staple of SEC Enforcement, such as in fiscal 2024, where it represented 17% of all SEC enforcement actions and 22% of its standalone actions.¹⁰ Some notable examples from the past six months:

• In July, the SEC sought, and obtained on consent, an asset freeze and other emergency relief against Georgia-based First Liberty Building & Loan, LLC and its founder in connection with a Ponzi scheme that defrauded about 300 investors out of at least $140 million. Defendants promised investors 18% returns from purported short-term bridge loans to businesses at high interest rates and then used new investor funds to make principal and interest payments to old investors.¹¹

• In August, the SEC charged an individual and his companies, Water Station Management LLC and Creative Technologies, Inc., with operating two related "Ponzi-line schemes" between 2016 and 2024. In cases that harken back to two particular Ponzi schemes the SEC prosecuted in the 1990s,¹² defendants raised more than $275 million from investors by offering and selling investment contracts in which investors supposedly purchased water machines that would generate revenue.¹³ According to the complaint, "in reality, most of the more-than 15,000 water machines Defendants purported to sell to investors either did not exist or were previously pledged to other investors." Defendants allegedly misappropriated over $60 million of investor funds to make Ponzi-like payments to other investors.¹⁴

• The SEC recently brought an affinity fraud case against defendants for allegedly perpetrating a Ponzi scheme centered in the North Texas Ismaili community. The defendant solicited investments, misrepresenting that the money would be pooled to trade options contracts and generate a fixed return, when in reality, most of the money was misappropriated and used for personal gain.¹⁵

• In June, the Commission charged an SEC recidivist with lying to investors about his prior disciplinary history and commingling investor funds with unrelated funds in bank accounts he controlled.¹⁶

• Also in June, the SEC charged the co-founder and CEO of CaaStle, a private company, with raising more than $250 million for CaaStle by means of false financial statements and audit reports that overstated revenue by more than 7,300%.¹⁷

• The SEC continues to bring actions parallel to criminal prosecutions. Last month, for instance, the SEC charged an individual, Daryl F. Heller, and his companies, Prestige Investment Group, LLC and Paramount Management Group, LLC, with operating a multi-year Ponzi scheme that defrauded investors of approximately $400 million. The complaint alleges that defendants created the false impression that they were running a successful, nationwide ATM network and paying investors fixed monthly distributions from income earned from ATM transaction fees and related charges. In fact, the defendants allegedly misrepresented the size and profitability of the ATM network and paid distributions to investors primarily using money from new investments and high-interest, short-term loans.¹⁸ The U.S. Attorney's Office for the Eastern District of Pennsylvania announced parallel criminal charges against the individual defendant, Heller.¹⁹

Insider Trading

Another priority among recent SEC enforcement actions is insider trading. Here, too, the focus on insider trading cases is not new. In fiscal 2024, 6% of the SEC's enforcement actions and 8% of its standalone cases were insider trading cases²⁰ – continuing a consistent trend over the years. The Commission's recent insider trading actions have focused on classic fact patterns involving corporate insiders, market professionals, and tipper-tippee relationships, based on straight-forward theories. Several of the SEC's insider trading cases also included parallel criminal actions. For example:

• In August, the SEC charged an employee of the subsidiary of a company that was about to sell itself, and two of his friends with whom he shared the information and who made $1 million trading ahead of the announcement.²¹ In a parallel action, the U.S Attorney's Office for the Southern District of New York announced criminal charges against all three.

• The SEC charged two former employees of a company that assisted companies with public filings in the SEC's EDGAR system. Through their work, they learned material nonpublic information, including their clients' upcoming mergers and earnings results. Despite their employer's prohibition against insider trading, they tipped friends about the pending events and made over $2 million dollars following the public announcements.²² These individuals were charged in a parallel criminal action by the U.S. Attorney's Office for the Eastern District of New York.

• In August, the SEC charged a former director of biopharmaceutical company, along with two of his family members and two of his friends, with insider trading ahead of an announcement that a multi-national pharmaceutical manufacture conglomerate would acquire the director's company. The SEC alleged that the director tipped his family and friends defendants and that together they made over $500,000 in illicit profits.²³ The U.S. Attorney's Office for the District of New Jersey filed parallel charges.

• The SEC charged three individuals, one of whom had been the managing director of a consulting firm that assisted biotech and pharmaceutical companies with public filings. Through his work, that individual learned material nonpublic about his firm's clients, including drug study results and upcoming mergers. He tipped his friends who traded in the securities of at least six public companies and generated over $500,000 in profits. The SEC's case followed a criminal case brought by the U.S. Attorney's Office for the Southern District of New York, in which the three defendants pleaded guilty.²⁵

Disclosure Violations

Public company disclosure is a core enforcement priority and has been for some time. Thus far under Chairman Atkins, the SEC seems to have brought only one case against a public company for disclosure violations,²⁶ and we have not found any cases charging accounting regularities, a critical category of public cases. We know the SEC is litigating public company accounting cases, and, notwithstanding the paucity of these cases over the past six months, we expect to see more.

Regulatory Violations

During Chairman Atkins' first six months, the SEC has continued to address violations of non-fraud provisions of the securities laws involving regulatory topics such as the submission of suspicious activity reports, conflicts of interest, breaches of fiduciary duty, inaccurate and misleading marketing, and others.²⁷ For example:

• Regulation BI. The Commission settled administrative proceedings against a broker-dealer and one of its registered representatives for violations of Regulation Best Interest ("Reg BI"). Reg BI generally requires a broker-dealer to act in the retail customer's best interest when making a recommendation of a securities transaction to a retail customer. The Commission found that the respondent violated Reg BI's care obligation when recommending certain illiquid, unrated, speculative bonds to "10 retail customers for whom Respondent did not have a reasonable basis to believe that the L Bonds were in the customers' best interest."²⁸ The Commission also found that the broker-dealer violated Reg BI's compliance obligation by not implementing policies and procedures reasonably designed to achieve compliance with Reg BI.²⁹

• Rule 105. The Commission charged a registered investment adviser, Sourcerock Group, LLC, with violating Rule 105 of Regulation M, which makes it unlawful to short sell an equity security and then purchase it during a restricted period. According to the order instituting proceedings, Sourcerock purchased stock in a public offering for six advisory clients after it had short-sold the same stock for those clients.³⁰

• Private Fund Adviser Management Fees. The Commission charged TZP Management Associates with violating Section 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") for breaching its fiduciary duties to its private clients regarding how it calculated management fees. The Commission found that TPZ failed to disclose conflicts of interest in how it calculated off-sets from private fund management fees for transaction fees TPZ received from portfolio companies.³¹

• Investment Adviser Conflict of Interest. The Commission charged Empower Advisory Group, LLC and Empower Financial Services, Inc. with violating Section 206(2) of the Advisers Act for inadequately disclosing conflicts of interest and making misleading statements when it advised clients to enroll in Empower Advisory's Managed Account service. The order finds that statements were made by retirement plan advisors that they were providing disinterested advice when they enrolled their in-plan retirement accounts into the Managed Account service but that they failed to disclose that it was within their financial interest to do this.³²

• Although filed a few weeks before Chairman Atkins arrived at the SEC, In the Matter of Velox Clearing LLC, reflects that the SEC will continue bringing cases for anti-money laundering ("AML") violations.³³ The Commission found that, because of Velox's unreasonably designed AML policies and procedures, it neglected to file at least 218 suspicious activity reports and thus willfully violated Section 17(a) of the Exchange Act and Rule 17a-8 thereunder.

Where do we go from here?

In some ways, the last six months give rise to more questions than answers. For example:

• Will the pace of filed enforcement Actions increase? During most of the past six months, the SEC operated without a permanent Director of Enforcement. In September, however, Judge Margaret ("Meg") Ryan took charge as Director of Enforcement. To what extent did the prior pace of filed enforcement actions stem from the uncertainty inherent in not having a permanent head of the enforcement program?

• Will the SEC depart from prior enforcement norms? It did so in an interesting way in two recent cases against regulated entities. In those cases, the Commission charged only cease-and-desist violations, a potentially important departure from its decades-old policy of obtaining a censure and other relief under Exchange Act 15(b)(4) and (6) and Advisers Act 203(e)-(f) against broker-dealers and investment advisers (and associated persons), respectively.³⁴ Similarly, Chairman Atkins streamlined the SEC's practice of evaluating waivers of enforcement action collateral consequences to allow the Commission to assess those waivers at the same time as an underlying settlement and to permit settling parties to back-out of settlements if the Commission denies the waiver but approves the settlement.³⁵

• Will we see greater credit for remediation and cooperation? Many of the SEC's recent enforcement orders describe respondents' remedial acts. Although that is a well-established practice, time will tell how cooperation and remediation will affect enforcement action outcomes, such as the penalties and other remedies, or whether the SEC opts not to bring an enforcement action at all.

• How will the Commission strike the balance between hard-core fraud cases and non-fraud regulatory actions? The past six months have demonstrated that the Commission's focus on clear-cut violations does not necessarily mean ignoring regulatory violations that do not involve fraud. The Commission is emphasizing its three-part mission: protecting investors; furthering capital formation; and safeguarding fair, orderly, efficient markets. That does not include ignoring violations when they occur.

Footnotes

1 WMHW Alert: SEC Chair Paul Atkins Signals Regulatory Shift (May 27, 2025), https://wmhwlaw.com/2025/05/27/wmhw-alert-sec-chair-paul-atkins-signals-regulatory-shift/.

2 Paul S. Atkins, Harmonization: A New Era of Collaboration between the SEC and CFTC (Sept. 29, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-092925-harmonization-new-era-collaboration-between-sec-cftc.

3 SEC Speaks 2025 – Four Key Takeaways (June 3, 2025), https://perkinscoie.com/insights/update/sec-speaks-2025-four-key-takeaways#a3.

4 Paul S. Atkins, Keynote Address at the 25th Annual A.A. Sommer, Jr. Lecture on Corporate, Securities, and Financial Law (Oct. 7, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-100925-keynote-address-25th-annual-aa-sommer-jr-lecture-corporate-securities-financial-law.

5 Paul S. Atkins, Harmonization: A New Era of Collaboration between the SEC and CFTC (Sept. 29, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-092925-harmonization-new-era-collaboration-between-sec-cftc.

6 Id.

7 Morgan Lewis Securities Enforcement Roundup – September 2025 (Oct. 7, 2025), https://www.morganlewis.com/pubs/2025/10/securities-enforcement-roundup-september-2025 (noting the same statistics).

8 SEC Announces Enforcement Results for Fiscal Year 2024 (Nov. 22, 2024), https://www.sec.gov/newsroom/press releases/2024-186.

9 SEC Rel. No. 33-11366, Delegation of Authority to Director of the Division of Enforcement (Mar. 10, 2025), https://www.sec.gov/files/rules/final/2025/33-11366.pdf.

10 Addendum to Division of Enforcement Press Release Fiscal Year 2024 (Nov. 22, 2024) ("2024 Enforcement Statistics"), https://www.sec.gov/files/fy24-enforcement-statistics.pdf.

11 SEC v. Frost, Civil Action No. 1:25-cv-03826 (N.D. Ga. filed July 10, 2025).

12 SEC v. The Bennett Funding Group, Inc.  96 Civ. 2237 (S.D.N.Y. Mar. 1996), https://www.sec.gov/files/litigation/litreleases/lr14875.txt (Ponzi scheme from offering and selling interests in office equipment lease revenue); SEC v. First Interregional Advisors Corp., Civil Action No. 97-1144 (MTB) (D.N.J. Mar. 1997) (same).

13 Addendum to Division of Enforcement Press Release Fiscal Year 2024 (Nov. 22, 2024) ("2024 Enforcement Statistics"), https://www.sec.gov/files/fy24-enforcement-statistics.pdf.

14 SEC v. Wear, No. 25-civ-6713 (S.D.N.Y. filed Aug. 14, 2025).

15 SEC v. Rawjani,   No. 3:25-civ-02404-L (N.D. Tex. filed Sept. 5, 2025).

16 SEC v. Mausner, No. 3:25-cv-01591-BTM-VET (S.D. Cal. filed June 23, 2025).

17 SEC v. Hunsicker, No. 25-cv-5897 (S.D.N.Y. filed July 18, 2025).

18 SEC v. Heller, LLC, No. 25-cv-5036 (E.D. Pa. filed Sept. 3, 2025).

19 SEC v. Regan,  No. 1:25-CV-07343 (S.D.N.Y. filed Sept. 4, 2025) (parallel SDNY prosecution in case against stockbroker who allegedly orchestrated a $63 million offering fraud).

20 See supra  n. 10 – 2024 Enforcement Statistics.

21 SEC v. Brent Cranmer, No. 25-cv-6816 (S.D.N.Y. filed Aug. 18, 2025).

22 SEC v. Chen, No. 25-cv-4580 (E.D.N.Y. filed Aug. 18, 2025).

23 SEC v. Rouzbeh Haghighat, No. 25-cv-14843 (D.N.J. filed Aug. 22, 2025).

24 SEC v. Robert Yedid, No. 1:25-CV-06704 (S.D.N.Y. filed Aug. 14, 2025).

25 U.S. Attorney's Office Southern District of New York, Press Release, Executive at Investor Relations Firm and Two Associates Plead Guilty To Insider Trading Scheme (June 6, 2025), https://www.justice.gov/usao-sdny/pr/executive-investor-relations-firm-and-two-associates-plead-guilty-insider-trading.

26 In the Matter of Fibrogen,  Rel. No. 3-22528 (Sept. 5, 2025) (charging pharmaceutical company for making false and/or misleading statements in connection with its drug's safety profile).

27 Other commentators have also noted the SEC's continuing focus on technical violations. See Despite Fraud Focus, SEC Still Targeting Technical Violations, Carloyn Welshhans et al. Law 360 (Oct. 3, 2025).

28 In the Matter of  Emerson Equity, LLC,  Rel. No. 34-103674 (Aug. 11, 2025).

29 In the Matter of Tony Barouti,  Rel. No. 34-103675 (Aug. 11, 2025) (parallel action against registered representative).

30 In the Matter of  Sourcerock Group, LLC, Rel. No. 34-103629 (Aug. 4, 2025) (cease-and-desist order under Exchange Act Section 21C against investment adviser for Rule 105 violation).

31 In the Matter of TZP Management Associates, LLC, IA Rel. No. 6908 (Aug. 11, 2025).

32 In the Matter of Empower Advisory Group, LLC, Rel. No. 34-103809 (Aug. 29, 2025).

33 In the Matter of Velox Clearing LLC, Rel. No. 34-102769 (April 4, 2025).

34 In the Matter of  Sourcerock Group, LLC, Rel. No. 34-103629 (Aug. 4, 2025); Bloomberg Tradebook LLC,  Rel. No. 33-11390 (Sept. 18, 2025) (cease-and-desist order under Securities Act Section 8A against broker-dealer for Securities Act Section 17(a)(2)).

35 Paul S. Atkins, Statement on Simultaneous Commission Consideration of Settlement Offers and Related Waiver Requests, (Sept. 26, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-2025-simultaneous-consideration-settlement.

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