Securities Enforcement Roundup – March 2025

In this issue of our monthly Securities Enforcement Roundup, we highlight top securities enforcement developments and cases from March 2025.

In March 2025:

• US Securities and Exchange Commission (SEC or the Commission) Chair-elect Paul Atkins’ nomination process commenced, and a final vote on his confirmation by the full US Senate is forthcoming.
• The US Court of Appeals for the First Circuit vacated a summary judgment order in favor of the SEC and a final judgment against Commonwealth Equity Services LLC for $93 million, including a $65 million disgorgement award.
• The SEC announced that it would no longer defend its climate-related disclosure rules and withdrew its defense of the rules in a pending action before the US Court of Appeals for the Eighth Circuit.
• The SEC dismissed multiple cryptocurrency civil enforcement actions citing the recently formed Crypto Task Force.

SEC Chair-Elect Atkins’ Nomination Proceeds to Full Senate

Update: Shortly following publication of this LawFlash, the Senate voted 52-44 to confirm Atkins as SEC chair.

On March 27, 2025, the confirmation process for Chair-elect Atkins began, and on April 3, 2025, the Senate Banking Committee approved his nomination with a vote of 13 to 11. The nomination is now headed to the full Senate, which is expected to confirm Chair-elect Atkins.

Chair-elect Atkins previously served as a commissioner at the SEC from 2002 to 2008. During his prior tenure, Atkins was an outspoken critic of high civil penalties that were imposed on companies for potential violations of securities laws, citing that those penalties can ultimately harm investors.[1] He has also been vocal about his views on how aggressive rulemaking only serves to increase costs for firms due to “disclosure overload.”[2] During his confirmation hearing, Chair-elect Atkins expressed his views on, among other things, the current regulatory landscape, issues with inefficient disclosures, digital assets, and cryptocurrency.

His statements indicated a transition from the SEC’s recent emphasis on aggressive and creative enforcement and signaled that crypto and digital assets will be a key focus if he is confirmed. He also indicated a willingness and desire to seek increased efficiencies in the Commission’s operations and noted that he would work cooperatively with the Department of Government Efficiency.

As discussed in our annual reports for public companies, investment advisers and broker-dealers, and private funds, under an Atkins-led SEC, we anticipate that many priorities will shift from those of the last four years. We anticipate that under new leadership, the SEC will get “back to basics,” distancing itself from technical violations, unprecedented civil penalties, and novel theories that appear to be “regulation by enforcement.” We expect the SEC to recommit its focus on fraudulent conduct, disclosure issues, trading abuses, and instances of more egregious misconduct, especially to the extent those issues result in harm to shareholders and retail investors.

First Circuit Vacates $93 Million Judgment Against Massachusetts-Based Dual Registrant, Including a $65 Million Disgorgement Award

On April 1, 2025, the US Court of Appeals for the First Circuit vacated a summary judgment ruling in favor of the SEC and a $93 million judgment against Commonwealth Equity Services LLC (Commonwealth), a dually registered investment adviser and broker dealer.[3] The SEC alleged that Commonwealth did not adequately disclose potential conflicts of interest with respect to a revenue-sharing agreement it had with its clearing broker. The SEC asserted that Commonwealth was incentivized to direct its clients’ investments to mutual fund share classes that generated revenue-sharing income for Commonwealth over other share classes that could be less expensive for its clients.[4]

The trial court partially granted the SEC’s summary judgment motion, finding, among other things, that Commonwealth was liable for breaching its fiduciary duties to its clients by failing to adequately disclose the revenue sharing agreement and the associated conflicts of interest.[5] After denying Commonwealth’s motion for reconsideration, the district court entered a final judgment against Commonwealth that included disgorgement of $65.6 million in revenue-sharing profits, a $6.5 million civil penalty, and $21.2 million in prejudgment interest.[6]

In vacating the district court’s grant of summary judgment, the First Circuit emphasized that the materiality of the allegedly omitted information from Commonwealth’s conflict of interest disclosures regarding its revenue-sharing arrangement (i.e., whether the omitted information was significant enough to influence a reasonable investor’s decision to invest in alternative or lower-cost mutual fund share classes) is an issue typically left for the trier of fact.[7] Accordingly, unless reasonable minds could not differ on the question of materiality, it should be decided by a jury, not on summary judgment.

The First Circuit found that the trial court had neglected to conduct the required fact-specific materiality inquiry, instead erroneously presuming all potential conflicts of interest are material as a matter of law.[8] However, as the First Circuit held, a reasonable jury could conclude that “additional disclosures with more precise descriptions, added to the already-disclosed conflicts of interest,” would not have met the standards for materiality.[9] This ruling will be helpful for defendants facing securities fraud charges, especially those seeking to defeat summary judgment motions by the SEC.

With respect to the $65 million disgorgement award, the First Circuit explained that the onus is on the SEC to provide a reasonable approximation of profits that were causally connected to the alleged violations.[10] The court found that the SEC’s reliance on expert calculations was insufficient, as the expert’s opinion was based on sampling not representative of the share classes approved by Commonwealth, and his analysis did not adequately account for transaction fees or consider the diverse goals and strategies of Commonwealth’s clients.[11]

For these reasons, among others, the First Circuit held that the SEC did not sufficiently show the requisite clear, causal relationship between Commonwealth’s alleged securities law violations and its alleged ill-gotten gains; the SEC needs to trace those profits to the violations.[12] The court effectively reaffirmed that mere calculation of profits earned is an insufficient basis for a disgorgement award. The First Circuit remanded the case back to the district court for further proceedings consistent with its decision.

SEC Votes to End Defense of Climate-Related Disclosure Rules

On March 27, 2025, the SEC voted to end its defense of its rules to enhance and standardize climate-related disclosures to investors.[13] The rules, which were adopted by the SEC on March 6, 2024 under the former administration, created a detailed and extensive disclosure framework concerning climate risks for issuing and reporting companies. Both private parties and states have sued, seeking to invalidate the rules. The ongoing litigation challenging the climate-related disclosure rules was consolidated and is pending before the US Court of Appeals for the Eighth Circuit.[14] The SEC had stayed the effectiveness of the rules pending resolution of the litigation.

As discussed in our February Securities Enforcement Roundup, SEC Acting Chairman Mark T. Uyeda directed the SEC’s staff last month to request the Eighth Circuit not to schedule an oral argument on the pending challenges to the Rule in order to provide time for the Commission to deliberate and determine its position in the litigation. At the time, Acting Chairman Uyeda “question[ed] the statutory authority of the Commission to adopt the Rule, the need for the Rule, and the evaluation of costs and benefits . . . [as well as] whether the agency followed the proper procedures under the Administrative Procedure Act to adopt the Rule.”[15]

Following the vote, Acting Chairman Uyeda stated: “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of costly and unnecessarily intrusive climate change disclosure rules.”[16] SEC staff also notified the Eighth Circuit by letter stating it was withdrawing its defense of the rules such that “[t]he Court need not reach the petitioners’ challenges[.]”[17]

SEC Announces Dismissal of Certain Crypto-Related Civil Enforcement Actions

On March 27, 2025, the SEC jointly stipulated with multiple crypto-asset defendants to dismiss ongoing civil enforcement actions against them.[18] Each of the joint stipulations cited as the primary basis for dismissal of the actions the Commission’s formation of the Crypto Task Force to “further develop the regulatory framework for crypto assets.”[19] A more detailed discussion regarding the SEC’s Crypto Task Force is in our January Securities Enforcement Roundup.

Following the SEC’s dismissal of these pending actions, Acting Chairman Uyeda stated, “For the last several years, the Commission’s views on crypto have been largely expressed through enforcement actions without engaging the general public. It’s time for the Commission to rectify its approach and develop crypto policy in a more transparent manner. The Crypto Task Force is designed to do just that.”

The SEC’s decision to end these enforcement actions is in line with its shift to an innovator-friendly approach in the crypto and digital asset space, a trend that we expect to continue under an Atkins-led SEC, following his anticipated confirmation.