Securities Enforcement Roundup – February 2025

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

In February 2025:

• The US Securities and Exchange Commission (SEC) announced a new Cyber and Emerging Technologies Unit (designed to complement its Crypto Task Force) amid decreasing crypto-related enforcement actions.
• Acting SEC Chair Mark Uyeda criticized Biden-era climate disclosure rules and directed the Staff to ask the US Court of Appeals for the Eighth Circuit to delay scheduling oral arguments in litigation currently challenging those rules.
• While awaiting the confirmation of the new SEC Chair, a small number of enforcement actions have been announced, all focused on fraud and harm to retail investors.
• Commissioner Peirce outlined a path toward “Level, Predictable Terrain” for public companies and the role the SEC should play in regulating them.

SEC ANNOUNCES CYBER AND EMERGING TECHNOLOGIES UNIT DESIGNED TO COMPLEMENT ITS NEWLY FORMED CRYPTO TASK FORCE

On February 20, 2025, the SEC announced the creation of the Cyber and Emerging Technologies Unit (CETU), which replaces the Commission’s former Crypto Assets and Cyber Unit. The former unit was originally created in 2017 as a “Cyber Unit.” In 2022, under then-SEC Chair Gary Gensler, the unit was expanded to include 20 additional positions and renamed the “Crypto Assets and Cyber Unit,” with a particular focus on “ensuring investors are protected in the crypto markets.”[1]

The new unit, led by Laura D’Allaird and comprised of 30 “fraud specialists,” will “focus on combatting cyber-related misconduct” and “protect[ing] retail investors from bad actors in the emerging technologies space.”[2] In particular, the CETU will combat misconduct in the below priority areas:

• Fraud committed using emerging technologies, such as artificial intelligence and machine learning
• Use of social media, the dark web, or false websites to perpetrate fraud
• Hacking to obtain material nonpublic information
• Takeovers of retail brokerage accounts
• Fraud involving blockchain technology and crypto assets
• Regulated entities’ compliance with cybersecurity rules and regulations
• Public issuer fraudulent disclosure relating to cybersecurity[3]

These priorities—many of which have parallels to the priorities announced in 2017 when the Cyber Unit was first created (during the first Trump administration)—reflect the current Commission’s focus on fraud and harm to retail investors, as well as holding bad actors accountable.

In announcing the CETU, the Commission made clear that the unit is meant to compliment the work of the newly formed Crypto Task Force led by Commissioner Hester Peirce, and “allow the SEC to deploy enforcement resources judiciously.”[4] As discussed in the January 2025 edition of our Securities Enforcement Roundup, the Crypto Task Force is dedicated to developing a regulatory framework for crypto assets, and its creation signals a departure from the previous administration’s approach to regulating the crypto industry through enforcement actions.

The creation of the CETU also coincides with recent reports that the SEC has closed multiple crypto-related enforcement investigations and dismissed a closely followed enforcement action against cryptocurrency exchange Coinbase, previously pending in the US District for the Southern District of New York.

The Commission explained in a recent press release that it dismissed the charges against Coinbase “[g]iven the pending work of the Crypto Task Force,” and based on its “judgment that the dismissal will facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry.”[5] The following day, SEC Commissioner Peirce issued a statement calling for public input on more than 50 questions with the goal of understanding how to better regulate crypto assets.[6]

Signaling a shift in the SEC’s approach to engaging with the digital asset community compared to the prior administration, the statement invites digital asset participants to engage with the SEC’s Crypto Task Force and help shape a more predictable crypto asset regulatory environment.

Commissioner Peirce’s call for public input is discussed further in our recent LawFlash, SEC Commissioner Calls for Public Input on Crypto Asset Regulation.

SEC BACKS OFF DEFENSE OF BIDEN-ERA CLIMATE DISCLOSURE RULES

On February 11, 2025, Acting Chair Uyeda issued a statement regarding the Climate-Related Disclosures for Investors Rule (the Rule), which was adopted on March 6, 2024 under the former administration and is currently being challenged in the US Court of Appeals for the Eighth Circuit. The Rule would require registrants to disclose certain climate-related information in registration statements and annual reports (see our March 26, 2024 LawFlash for a more detailed discussion about the Rule). Both Acting Chair Uyeda and Commissioner Peirce voted against the Rule’s original adoption, arguing that the existing disclosure requirement was sufficient and that the Commission lacked the “statutory authority or expertise” to address climate change issues.[7]

Consistent with those views, Acting Chair Uyeda’s recent statement criticized the Rule as “deeply flawed” and warned that it “could inflict significant harm on the capital markets and our economy” if it becomes effective.[8] His statement also explains that he directed the SEC’s Staff to request the Eighth Circuit not to schedule 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.

As Acting Chair Uyeda explained: “The Commission’s briefs previously submitted in the cases consolidated in the Eighth Circuit do not reflect my views. The briefs defend the Commission’s adoption of the Rule, but I continue to question 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.”[9] The letter to the Eighth Circuit indicates that the SEC will submit a status report by March 28, 2025.[10]

SEC ANNOUNCES A SMALL NUMBER OF ENFORCEMENT ACTIONS, PRIMARILY FOCUSED ON FRAUD AND HARM TO RETAIL INVESTORS

Very few enforcement actions have been announced via press release since the change in administration. In February, the SEC announced that it filed two fraud cases, both in the US District Court for the Southern District of New York and announced settled charges with an investment adviser and former investment adviser representative for breaching their fiduciary duties to retail clients.

The first litigated matter involves charges against an individual and two companies he owned and controlled for fraudulently raising over $4 million from 64 investors by selling interests in mutual funds that did not exist.[11] According to the SEC, the defendant operated fictitious investment firms and offered investors shares in sham mutual funds through websites, a press release, and internet advertisements, which made several materially false and misleading statements (e.g., that the “mutual funds were managed by industry professionals with decades of experience and achieved years of high-yield investment returns”).[12]

Similarly, the SEC charged another individual with orchestrating a fraudulent scheme that raised approximately $4 million from at least 17 retail investors.[13] The SEC alleged that this individual falsely represented himself as a wealthy hedge fund owner, claiming that investor money would be invested pursuant to a complex investment strategy. According to the SEC, the individual did not invest the money as represented and instead, misappropriated the bulk of investor deposits, including to pay off personal expenses, including credit card charges.”[14] The New York County District Attorney’s Office has separately filed criminal charges against the individual.[15]

The SEC also filed settled charges against a registered investment adviser and former investment adviser representative for misconduct involving advisory services.[16] According to the SEC, respondents recommended converting over 180 brokerage accounts (most of which were accounts for elderly clients) at an unaffiliated broker dealer to advisory accounts at the investment adviser, resulting in “significantly increased costs” with generally “no additional services or benefits.”[17]

The SEC alleges that, in violation “of their fiduciary duties, “the Respondents never disclosed in advance that the conversions from brokerage accounts to advisory accounts resulted in significantly higher fees for clients, and increased compensation for [the former investment adviser representative], nor disclosed the resulting conflict of interest.”[18] Without admitting or denying the SEC’s findings, the respondents agreed to pay a combined $225,000 penalty. The investment adviser agreed to retain a compliance consultant and the individual received a nine-month industry suspension.[19]

As discussed further in our year in review report for investment advisers and broker-dealers, we expect the SEC under its new leadership to continue focusing on cases involving fraud and breaches of fiduciary duty, specifically where there is alleged harm to retail investors.

COMMISSIONER PEIRCE OFFERS PATH TOWARD ‘LEVEL, PREDICTABLE TERRAIN’ FOR PUBLIC COMPANIES

In a lengthy keynote address, Commissioner Hester Peirce offered detailed remarks on public companies, which, in her view, are “confronting a symptom of a larger societal malady—importing politics and contentious social issues into everything we do.”[20] To achieve “more level, predictable terrain” and a return “to normal” for public companies and the SEC, Commissioner Peirce articulated the following seven guiding steps:

• Commissioner Peirce stressed the “limited missions” of public companies and the SEC and suggested a departure from companies and the SEC wading into “socially contentious” issues.[21]
• She advocated for “fending off efforts to commandeer the SEC’s disclosure regime” and a return to disclosures in securities filings focused on “materiality from the perspective of the reasonable investor” instead of special interests.[22]
• Commissioner Peirce criticized the current disclosure rules which “pressur[e] asset managers to push public companies into contentious social and political issues.” She went on to stress that “[f]iduciary duty to the fund should be the only guiding principle for asset managers in deciding whether and how to exercise a vote, but this public disclosure requirement elevates voting and exposes it to scrutiny by third parties in a way that could interfere with the proper exercise of fiduciary duty.”[23]
• She advocated for “bringing companies back onto neutral territory [by] doing a better job protecting investors from having their resources diverted to deal with shareholder proposals that are not aimed at maximizing corporate value.” Contrasting shareholder proposals concerning governance with proposals related to pro and anti–environmental and social issues, Commissioner Pierce stressed the costs the latter have on a company and recommended a reexamination of ownership thresholds in Rule 14a-8 and similar tools to ensure proponents have a “meaningful economic stake or investment interest in a company.”[24]
• Commissioner Peirce suggested that the Commission refrain from using enforcement actions as a means to override managerial decision-making and proposed “[r]estoring the internal accounting controls and disclosure controls and procedures requirements to their important, but limited intended purposes [as] a change in the right direction to rein in the scope of enforcement actions.”[25]
• She recommended that the Division of Corporation Finance and Office of the Chief Accountant “re-double efforts to provide guidance to companies about the many disclosure issues that arise in the normal course of business,” and “communicate early and often” during the registration statement review process.[26]
• As her final step, Commissioner Pierce warned against weaponizing financial systems or financial regulators, argued that capital markets “should function in a way that is agnostic to the party in power,” and affirmed “the belief that our capital markets are designed to serve all Americans, regardless of political ideology.”[27]