Printed from

SEC set to step up investigations, enforcement in Biden era

Posted On: Apr. 6, 2021 7:00 AM CST


Companies should expect more aggressive regulatory and investigative activity from the U.S. Securities and Exchange Commission during the Biden administration, with special purpose acquisition companies, or SPACS, certain to be one area of focus, experts say.

If borne out, the rise in regulatory actions for listed companies and others that fall within the SEC’s regulatory scope will contrast with the agency’s work under the Trump administration, they say.

“The SEC has been unusually quiet for the last four years,” said Boris Feldman, a partner and head of U.S. technology disputes, litigation and arbitration for Freshfields Bruckhaus Deringer LLP in Menlo Park, California.

“There’s a lot of pent-up energy among the staff to bring actions after the last few years,” he said.

Substantially fewer enforcement actions were brought by the SEC during the Trump administration compared with the eight years of the Obama administration, with a smaller number of prosecutions for insider trading and other issues, said Peter M. Gillon, partner, insurance recovery & advisory, for Pillsbury Winthrop Shaw Pittman LLP in Washington.

But the SEC run by a Biden appointee likely won’t simply be a return to the Obama years, he said, noting that the agency under President Obama was criticized for not aggressively pursuing individuals.

“There’ll be a renewed effort to go after the wrongdoers,” Mr. Gillon said.

Acting SEC chair Allison Herren Lee’s Feb. 9 statement that restored the power of senior officers in the agency’s enforcement division to approve formal orders of investigation likely portends a more robust and active agency, said Ronald L. Ohren, counsel with Baker & McKenzie LLP in Chicago and chair of its North America litigation and government enforcement group’s insurance practice.

The authorization was put in place by the Obama administration but was rescinded during the Trump Administration.

Ms. Lee said in the statement that the restoration “will enable investigative staff to act more swiftly to detect and stop ongoing frauds, preserve assets and protect vulnerable investors.”

The confirmation vote for President Biden’s nominee for SEC chairman, Gary Gensler, is slated for next week.

SPACs are certain to be a major focus of the SEC, experts say.

The so-called “blank check companies” are shell companies formed for the purpose of raising capital to acquire existing businesses and usually have two years to make an acquisition. The structures allow businesses to become listed without going through a traditional initial public offering.

According to SPACInsider, a website that tracks SPACs, there have been 298 SPAC IPO transactions this year as of Friday, compared with 248 for all of 2020.

Last week, Paul Munter, the SEC’s acting chief accountant, said market participants should carefully consider whether a SPAC’s target company “has a clear, comprehensive plan to be prepared to be a public company.” The agency has also released a statement on issues that should be considered before a private operating company undertakes a business combination with a SPAC.

The SEC has already opened an inquiry into SPACS, seeking information from securities underwriters on how they are managing the risks involved.

Regulators will not wait for a catastrophe involving SPACs to happen before taking meaningful action, said Toby M. Galloway, shareholder and co-chairman, securities litigation and enforcement, at Winstead PC in Fort Worth, Texas.

“It’s very much on the regulatory agenda and the enforcement agenda because there are so many opportunities for abuse in the whole process,” he said.

Kevin LaCroix, executive vice president in Beachwood, Ohio, for RT ProExec, a division of R-T Specialty LLC,  said it is difficult to tell whether the SEC is gearing up for more regulatory guidance or enforcement actions on SPACs, but the request for information signals it will be an area of scrutiny.

Observers say another area of interest for the SEC may be environmental, social and corporate governance disclosures, which relate to climate change, diversity and other issues.

In March, Ms. Lee requested input from investors and others on whether current disclosures are adequate in light of rising demand for climate change information.

The SEC also announced it was responding to investor demand by launching a new page on its website to bring together details of agency actions and the latest information about ESG investing.

Mr. Galloway said that “it’ll be very interesting to see” whether Mr. Gensler, if confirmed, will leave the ESG issue to Congress, or pursue it through rulemaking or enforcement activity. The agency is currently looking for cases in which companies may not have adequately disclosed the risks of climate change, he added.