SEC commissioners regain subpoena power, potentially curtailing record-level fines

After 16 years, commissioners at the Securities and Exchange Commission (SEC) finally adopted a rule to regain the authority to launch investigations from the Commission’s Division of Enforcement.

This move may help end the agency’s Wild West-style enforcement that has beleaguered the cryptocurrency industry. Under former Chair Gary Gensler, many crypto issuers were confused by the ambiguous administrative guidance regarding crypto trading and, as consequence, were penalized by Enforcement staff for reasons unspecified in law.

This new rule may also cool off the record number of fines issued by the SEC in recent years. In 2024, the SEC advanced 583 total enforcement actions while obtaining orders for $8.2 billion in fines, the largest amount ever. All these actions and their subsequent penalties were triggered by investigations that Enforcement attorneys both launched and approved using delegated power.

In 2009, under then-Chair Mary L. Schapiro, the SEC delegated this ability to the Division of Enforcement. This enabled Enforcement attorneys to issue and later review formal orders to investigate regulated firms. This empowered Enforcement to unilaterally pursue investigations into suspected acts of wrongdoing as a prerequisite for issuing subpoenas.

In effect, the Division became its own supervisor when greenlighting subpoenas based on inquiries it launched. But these officials were never meant to have such carte blanche authority – to serve the cause of justice and guarantee due process, they need supervision. Allowing Enforcement agents to approve their own investigations is akin to inviting college students to grade their own essays.

To make matters worse, the Director of Enforcement quietly subdelegated this power to his senior officers, including various Associate and Assistant Directors, at the Division. Once President Obama’s second term ended, Enforcement put an end to this sneaky practice of sub-delegation and reserved this power to the Director.

Moving forward, commissioners are ending this bureaucratic cronyism to reclaim the right to review investigations. Only the heads of the agency can determine whether the investigatory scope justifies issuing a subpoena for documents or witness testimony.

This move marks a welcoming sign of institutional reform at the SEC. Such a rule binds the Director of Enforcement’s actions to the commissioners, who should reserve the singular right to authorize subpoenas. Commissioners similarly issue final orders that authorize an array of agency actions. These include issuing final votes on rulemakings, adjudication appeals, and authorizations of district court proceedings.

Even most enforcement actions implicating investors or firms must undergo commission review prior to going into effect. It is therefore perfectly reasonable for the Commission to authorize any request by Enforcement to investigate and issue subpoenas.

Additionally, commissioners are more democratically accountable than their legal staff in that they are appointed by the president and confirmed by the Senate, with no more than three commissioners belonging to the same political party. Since the commissioners appoint the Director of Enforcement, he should be subordinate to them on all formal orders.

The Division of Enforcement was designed as the vehicle to enforce subpoenas after the underlying information had been reviewed by Commission leadership. Before abdicating its responsibility in 2009, the Commission was originally authorized to:

“[C]onduct investigations concerning possible violations of the Federal securities laws, which provide that ‘any member of the Commission or any officer designated by it is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, or other records which the Commission deems relevant or material to the inquiry.’”

Under this authority, commissioners issued formal orders to investigate suspected securities violations to specified Enforcement staff. If the results of the investigation proved valid, Enforcement staff were then directed to issue subpoenas to gather information from the examined party. This constituted a delegated search and seizure power for Enforcement.

Under this new rule, the Enforcement Director retains the ability to carry out subpoenas via search and seizure. However, he can no longer issue formal orders to authorize such action. The commissioners have now reclaimed a major portion of their investigative authority from what had become a rogue division of the agency.

No longer should we see Enforcement staff pursue crypto firms for sport. Under this prior delegation, Enforcement staff appeared to compete for the most fines issued and penalties enforced. This accumulated in record-setting years for the Enforcement Division in 2022 and 2024.

Using specious claims of fraud underpinned by ambiguous guidance, crypto firms like Coinbase were ransacked by invasive subpoenas and an agency-propelled lawsuit. Thankfully the SEC recently dropped its case in the Second Circuit Court of Appeals under Acting Chair Mark Uyeda. He has also instituted a number of regulatory reforms, which include establishing a crypto taskforce to ensure clear rules of the road for crypto firms.

Crypto firms were merely one casualty of the Obama and Biden-era Enforcement actions. Under new leadership, the commission has reclaimed the right to review investigations and oversee subpoena requests. Such matters must now be consistent with the Division’s enforcement priorities and reflect clear standards of permissibility.