SEC Reauthorizes Senior Enforcement Officials To Issue Formal Investigation Orders
Government/Regulatory Enforcement
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  • SEC Reauthorizes Senior Enforcement Officials To Issue Formal Investigation Orders
    On February 9, 2021, Acting Chair of the Securities and Exchange Commission (“SEC”), Allison Herren Lee, announced that she had authorized senior officers in the SEC’s Enforcement Division to approve the issuance of Formal Orders of Investigation without prior approval from the SEC’s commissioners.  While significantly less surprising and less consequential than her announcement from the same week regarding conditional settlement offers, this reinstatement of delegated authority reflects another instance of swinging the pendulum back in favor of more aggressive enforcement.

    In the context of an SEC investigation, the issuance of a formal order permits the SEC’s Enforcement Staff to issue administrative subpoenas and take certain other actions that are not otherwise permitted.  While under SEC rules, only the SEC Commissioners have the authority to approve the issuance of such an order, there has long been recognition that some degree of delegation is appropriate.  Historically, the authority had been delegated to the Director of Enforcement; but following the 2008 financial crisis, the SEC delegated authority further to senior officers within the Enforcement Division.  When then-SEC Director of Enforcement Robert Khuzami announced the implementation of delegated authority to the SEC’s senior officials in his speech on August 5, 2009, he explained these changes would mean that “if defense counsel resist[s] the voluntary production of documents or witnesses, or fail[s] to be complete and timely in responses or engage in dilatory tactics, there will very likely be a subpoena on [their] desk[s] the next morning.”

    The delegated authority to senior officers was on a trial basis for a year and became permanent in 2010.  However, in 2017, then-Acting SEC Chair Michael Piwowar rolled back this delegated authority, by removing the second layer of delegation from the Director of Enforcement to other staff in the SEC’s Enforcement Division.

    Reinstating delegated authority may result in a modest uptick in the number formal investigations instituted, and certainly signals a desire to be active and aggressive, but ultimately it is more of an internal administrative change than a substantive one.  Accordingly, we do not expect to see a significant impact from the change in any individual investigation.