Securities Enforcement Under Chairman Atkins

A little more than halfway into the SEC’s first full year under the leadership of its Chairman, Paul Atkins, recent SEC actions give a glimmer into possible emerging trends in enforcement. In the areas of financial statement regulation and insider trading policing, the SEC is returning to basics, stepping back from some more expansive and aggressive theories of liability that characterized the last administration. The SEC has filed some cases involving allegations regarding inaccurate disclosures and statements to investors. These matters have involved relatively low value loss figures, and it remains to be seen if the SEC intends to pursue larger corporate fraud matters. We have also seen a pull-back from some of the regulatory sweeps surrounding the investment community, such as the sweeps concerning record keeping requirements. Significant developments, however, are occurring with respect to how the SEC handles investigations and enforcement actions, particularly with the Commission’s reforms to the Wells process. An important Supreme Court ruling in Sripetch will continue to give the agency the authority it has claimed to recover ill-gotten gains through disgorgement.

SEC Enforcement Developments

1. Wells Process Reforms Enhance Transparency and Disclosure

The Wells process itself has long been a staple of SEC enforcement practice. By way of background, during an investigation, Enforcement Staff issue a “Wells” notice to potential respondents, identifying the charges the Staff intends to recommend to the Commission and the basis for those charges. Recipients then have the opportunity to make written or video submissions setting forth their position on the anticipated charges, typically followed by a meeting with Division staff.

In the early months of his term, Chairman Atkins signaled his intent to reform the Wells process, emphasizing accuracy, transparency, and fairness as guiding principles. On February 24, 2026—nearly five months later—the SEC issued a comprehensive Enforcement Manual update introducing significant procedural reforms to the Wells process.

The revised procedures impose new disclosure obligations and oversight mechanisms on the Staff, enhancing transparency:

• Dual approval for Wells notices. Both the supervising Associate Director or relevant Staff Enforcement Unit Chief and the Office of the Director must now approve the issuance of a Wells notice or a recommendation to proceed without one.
• Disclosure of evidence. Wells recipients now have the right to be informed of salient, probative evidence that the Commission believes the recipient may not already possess.
• Expanded disclosures in fraud cases. In fraud cases, where a recipient has not obstructed the investigation, expected disclosures may include core misrepresentation documents, documents bearing on falsity and scienter, materiality evidence, and testimony transcripts or excerpts.
• Mandatory file-sharing efforts. In contrast to the prior discretionary approach, the Commission must now, as a matter of policy, make reasonable efforts to permit review of relevant, non-privileged investigative-file materials.

Additional revisions to the Wells Process are also designed to ensure that defense counsel has adequate time to review relevant information underlying the Wells notice and respond to the Wells notice. These include:

• Four-week submission deadline. Wells submissions are generally due four weeks after issuance of the Wells notice.
• Four-week meeting window. Post-Wells meetings must generally occur within four weeks after the submission and must include senior Division leadership.
• Content restrictions. The Commission will reject submissions and White Papers that discuss settlement terms, are labeled under FRE 408, or purport to restrict the Commission’s ability to share information with other governmental agencies.

These reforms will provide seasoned defense counsel the opportunity to meaningfully challenge the Enforcement Staff’s theories of liability underlying any particular Wells notice: The Staff will face an additional layer of approval in seeking to issue Wells notices, and parties challenging a Wells notice will be armed with more evidence-specific material from the Staff’s investigative file in preparing their submissions to the Staff. Defense counsel should request the Staff’s production promptly upon receiving a Wells notice, then address the strongest disclosed evidence directly in their submissions. Counsel should also take full advantage of the expanded opportunity to engage with senior Enforcement Division leadership in the post-submission meeting—an audience that may prove more consequential under the new framework. The changes to the Wells process build on the previous amendment in March 2025 revoking the authority of the Director of the Enforcement Division to commence investigations. Authorization from a majority of SEC commissioners is now required.

2. Disgorgement After Sripetch: No Investor Loss Required

The SEC’s basic equitable disgorgement authority was reaffirmed earlier this year when a unanimous Supreme Court held in Sripetch v. SEC, 146 S. Ct. 1403 (June 4, 2026), that the SEC need not prove investors suffered financial loss to obtain disgorgement of a defendant’s ill-gotten gains, provided the SEC could demonstrate that the defendant had violated his victims’ “legally protected interests”. This overturned the rule in the Second Circuit following SEC v. Govil, 86 F. 4th 89 (2^nd Cir. 2026). which required proof of financial loss by victims. For a more detailed discussion of the Sripetch decision, see Foley Hoag’s summary.

Although the decision leaves the status quo in place in terms of the SEC’s disgorgement authority, the outlines of potential future challenges over the nature of the remedy were set forth in Justice Thomas’s concurrence, which argued that disgorgement more closely resembles a legal remedy carrying a Seventh Amendment jury-trial right. Other open questions remain as well, including how courts will construe the requirement that “legally protected interests” of victims must be breached by the offender. Because the petitioner in Sripetch did not dispute invading his victims’ legally protected interests, defense counsel in future cases will undoubtedly have an opportunity to challenge the scope of this requirement.

Anticipated challenges notwithstanding, lower courts have already cited the Sripetch framework to uphold disgorgement orders. In SEC v. Gallagher, the Southern District of New York cited Sripetch in ordering a penny-stock promoter—who used Twitter to “scalp” 31 stocks—to disgorge $1,255,889 in trading profits U.S. Dist. LEXIS 137934 (Jun. 18, 2026). The court confirmed that the SEC was not required to demonstrate loss causation and that the appropriate measure of disgorgement is the defendant’s wrongful profits, not investors’ losses, provided the amount ordered reasonably approximates profits causally connected to the violation. Gallagher offers an early illustration of how Sripetch operates in practice: a court may order substantial disgorgement based solely on a defendant’s gains, without any finding that identifiable investors suffered a quantified pecuniary loss.

Corporate Fraud and Financial Statement Reporting

On May 29, 2026, the SEC proposed to rescind the 2024 climate-related disclosure rules in their entirety, stating that the rules exceed the SEC’s statutory authority and are inconsistent with a registrant-specific, materiality-based disclosure regime. That action follows the Commission’s 2025 decision to stop defending the rules in litigation and is consistent with the broader recalibration of climate and ESG disclosure initiatives under current leadership. Commissioner Mark Uyeda supported rescinding the climate-disclosure rules as a step toward refocusing on financial materiality, noting that investments are made to generate returns, not as charitable gifts. Commissioner Hester Peirce made a similar point, saying mandated disclosures should address investors as a class, whose common interest is financial returns, and should not be used to respond to stakeholder demands or regulators’ curiosity. While the current commissioners support the rescission of the climate-disclosure requirements, former SEC Chair Gary Gensler noted at the time of their introduction in 2024 that these rules were designed to harmonize U.S. reporting with requirements imposed by other international regulators.

In July 2026, Chairman Atkins said one of his top priorities is restoring the public-company disclosure regime to one “rooted in materiality” and emphasized that material information must, at minimum, facilitate evaluation of financial returns. Subsequently, on August 5, 2026, the SEC announced the creation of a new Financial Reporting and Accounting Unit within the Division of Enforcement. The unit will be staffed with attorneys and accountants specializing in financial reporting, accounting, and auditing, and is designed to provide dedicated expertise and capacity to pursue accounting and financial reporting fraud cases—a structural commitment that underscores the SEC’s renewed enforcement focus in this area. For more details on this, see Foley Hoag’s Alert.

Based on the SEC’s enforcement activity in 2026, there is some indication, albeit limited, that the Commission intends to focus on core financial statement fraud, holding both companies and executives accountable for financial statement manipulation designed to improve the appearance of a company’s earnings.

The clearest example is the SEC’s action against a large public company, one of the first enforcement actions of 2026. The Commission charged the company and two former executives with inflating the performance of an important but underperforming business unit by pressuring employees to shift operating profit from other business segments to the underperforming business unit through various accounting contrivances. The SEC pursued and settled charges of antifraud, reporting, internal accounting controls, and books and records violations—evidence of the Commission’s continued use of those claims to pursue recovery. The settlement imposed a $40 million civil penalty on the company, ordered individual monetary relief, and imposed a three-year officer-and-director bar on one executive.

The SEC followed in April 2026 with another enforcement action involving the accuracy of public financial statement disclosures. In the matter of Key Tronic Corporation, et al., the SEC alleged the manufacturer had violated the books and records and internal control provisions of Section 13(b) of the 1934 Exchange Act. The allegations concerned false invoice entries at one of the manufacturing facilities directed by management, which were designed to create the appearance of income-generating manufacturing activity when in fact there was none. The scheme had an impact of nearly $1 million on reported net income. Consistent with the focus on individual accountability, the SEC also settled related charges with Key Tronic’s then CFO and its Vice President in charge of U.S. operations, both of whom were required to pay a financial penalty. The fact that the SEC settled this matter as a violation of the books and records and internal control provisions, notwithstanding that it noted there was evidence of deliberate falsification of invoice entries, does raise a question as to why the SEC did not avail itself of more serious anti-fraud charges against the respondents. It is possible the SEC did not believe the evidence was sufficient to sustain more serious charges, and defense counsel should be prepared to argue in future cases against the imposition of more significant anti-fraud penalties involving lower value financial misstatement offenses. Nevertheless, while the penalty amounts against the individual respondents were modest (not more than $20,000 per individual), the case signals that the SEC is willing to name and charge individual officers for internal-controls failures rather than holding only the company liable for such violations.

Policing Qualitative Misstatements to Shareholders

In addition to accounting-based financial statement manipulation, the SEC also appears willing to hold companies accountable for qualitative misstatements about the nature of the company’s business that mislead investors. To this end, on April 28, 2026, the SEC settled charges against RYVYL, Inc., and its founders for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act for falsely stating in RYVYL’s public filings that it was a cutting edge financial technology company that had developed a proprietary blockchain-based payment solution, when in fact its business was based on reselling credit card or ACH-processing services of other companies. Both founders of the company were subject to civil financial penalties and prohibited for five years from serving as an officer or director of a public company.

The SEC is Actively Pursuing Investment Fraud Schemes

This year saw the SEC also pursue investment fraud cases against investment firms and their principals. In SEC v. Eric L. Munson et al. (S.D.N.Y. Aug. 2026), the SEC alleged that Eric Munson, Adit Ventures Management, LLC, and affiliated general partners (Adit Ventures, LLC; Adit Ventures II, LLC; and Adit Ventures III, LLC) defrauded investors in private pre-IPO funds from April 2019 through December 2024. The scheme involved: (1) inducing investments through false claims—including falsely telling an investor that a fund already owned 32,000 Klarna shares to secure a $15 million investment, and falsely promising another investor that Munson would invest $5 million alongside him; (2) misappropriating fund capital through unauthorized intercompany loans, including using an investor’s $5 million to purchase Flexport shares for Adit Ventures III’s own profit; (3) buying pre-IPO shares and reselling them to client funds at undisclosed markups while charging unauthorized acquisition fees; and (4) pledging client fund assets as collateral for a $10 million line of credit without disclosure.

In SEC v. Voyager Pacific Capital Management, LLC (E.D. Cal. Apr. 2026), the SEC alleged that several defendants, acting through Voyager Pacific Capital Management, LLC, defrauded investors in the Voyager Pacific Opportunity Fund II, LLC from September 2020 through March 2024. The defendants diverted approximately $5.98 million of investor funds to affiliated entities they controlled through unauthorized transfers and unenforced promissory notes with self-serving terms. To conceal the fraud, the defendants used over $15.5 million (89%) of new investor money to make Ponzi-like payments of the promised 10% preferred returns to existing investors. They further manipulated financial statements by inflating capitalized costs and creating approximately $8.2 million in fraudulent backdated purchase agreements with entities controlled by defendants. The SEC charged violations of Section 10(b) and Rule 10b-5 in each of these cases, among other claims.

For the most part, however, the SEC’s recent filings have targeted classic pump-and-dump schemes and other garden-variety fraud aimed at unsophisticated or vulnerable investors. It remains to be seen whether the SEC will vigorously pursue more established or sophisticated players in the investment fund industry.

Insider Trading: Robust Enforcement, But Open Questions Remain About the SEC’s Willingness to Pursue Novel Theories of Insider Trading

Just as the SEC has publicly recommitted itself to bread-and-butter accounting fraud and financial reporting cases, the agency’s insider trading focus in the first half of FY 2026 may potentially signal a retreat from boundary-pushing theories of insider trading that were pursued by the last administration. Early results bear that out. The SEC has brought a steady cadence of insider trading actions based on clearly established insider trading doctrines, including a landmark 21-defendant ring case coordinated with DOJ. For public companies, law firms, and financial intermediaries, the practical takeaway is that traditional compliance fundamentals—controls over the dissemination of material non-public information (MNPI), enforcement of trading policies for corporate insiders, and training for individuals who routinely possess MNPI—remain important components of an insider trading policy.

The most significant insider trading case of the first half of 2026 was the coordinated SEC/DOJ action involving information allegedly stolen from global law firms. On May 6, 2026, the SEC charged 21 individuals for their alleged involvement in a decade-long insider-trading scheme that exploited material nonpublic information misappropriated from multiple global law firms, generating millions of dollars in illicit profits. The SEC alleges that Nicolo Nourafchan, an M&A attorney in Los Angeles, and Robert Yadgarov orchestrated a global scheme from 2018 to 2024 involving information about more than twelve pending corporate transactions. The complaint charges antifraud violations and seeks injunctive relief, disgorgement with prejudgment interest, and civil penalties. Parallel criminal charges were announced against all defendants. The case underscores the SEC’s willingness to pursue legal professionals who breach their fiduciary duties.

The SEC also pursued cases this year against non-insiders who misappropriated MNPI they acquired from insiders. The January 2026 biopharma cases are equally illustrative. In United States v. Hong Wang, the SEC and DOJ filed parallel complaints charging a New Jersey biostatistician in federal court in Boston for allegedly earning more than $450,000 by trading C4 Therapeutics stock after learning confidential clinical-trial results through consulting work for the company. The same month, the SEC charged Brian Suthoff, a Massachusetts resident, with avoiding nearly $20,000 in losses by liquidating Sage Therapeutics shares after allegedly learning confidential FDA-related information from a former Sage employee. Together, these matters show that the SEC and DOJ remain willing to pursue trades—large and small—where the facts show access to MNPI and a breached duty to the source of the MNPI.

Shadow Trading Theory Faces Ninth Circuit Appeal in Panuwat

The pending Ninth Circuit appeal in SEC v. Panuwat remains the principal test of the SEC’s shadow-trading theory—a legacy of the prior administration’s willingness to extend insider trading laws to novel theories. In Panuwat, the SEC alleged that a Medivation executive learned of Pfizer’s interest in acquiring Medivation and then purchased short-term call options in a separate biopharmaceutical company that the SEC alleged was economically linked to Medivation. A jury found Panuwat liable in 2024, but the appeal has become a vehicle for testing how far insider-trading law can extend when the defendant trades in a company other than the source of the MNPI. On appeal, the SEC appears to have narrowed its theory of the case, emphasizing the language of Medivation’s insider-trading policy and confidentiality obligations rather than advancing a free-standing market-connection theory.

It is true that SEC enforcement leadership has signaled a possible shift away from “creative” insider trading theories in favor of more traditional cases, and the shadow-trading theory remains one of the more controversial theories of liability to flow from Chairman Gensler’s tenure at the SEC. Former Acting Director and subsequently Principal Director of Enforcement, Sam Waldon, stated last year at an industry conference that “creativity is probably not where we want to be.” However, given that the SEC is continuing to prosecute Panuwat on appeal, it raises the possibility that the current Commission may not entirely abandon the shadow trading theory pursued by the previous Commission.

From a compliance perspective, public companies and investment firms should consider revisiting their insider trading policies after resolution of the Panuwat appeal, lest their current policies are misaligned with the parameters of liability on insiders that may flow from that decision.

Conclusion

Under Chairman Atkins, the SEC has sought to provide greater clarity to defendants during the investigative Wells process, presenting an opportunity for defense counsel to adequately rebut the Enforcement Staff’s theories of liability. Likewise, it has not pursued novel insider trading enforcement theories in cases filed this year or imposed new disclosure regimes on public companies. At the same time, this approach, which may be seen as friendly toward business interests, should not be confused with lax enforcement. This year has seen the SEC pursue numerous insider trading cases, including against non-insiders, for misappropriating MNPI. The SEC has also shown interest in pursuing cases involving misstatements to investors, including through financial statement misrepresentation, although the cases it has brought have involved relatively low amounts of alleged injury and penalties. It remains to be seen how the current SEC, and its newly minted Financial Reporting and Accounting Unit, intend to police financial statement reporting by public corporations, and where the line will be drawn between what is considered a books and records violation versus what is prosecuted under the anti-fraud provisions of the federal securities laws.