The US Securities and Exchange Commission has long been called the top cop on Wall Street, but in Donald Trump’s administration the regulator has struck a softer tone.
The SEC has shifted focus since 2017 under the direction of chairman Jay Clayton, with blockbuster corporate fines giving way to cases in which Main Street investors have been bilked out of their savings.
“Extracting large settlements out of big banks is not the only thing that we’re here to do,” said Steven Peikin, co-director of enforcement, in an interview with the Financial Times.
“We are uniquely focused on things that affect retail investors,” added Stephanie Avakian, who leads the SEC’S enforcement programme alongside Mr Peikin.
The change in priorities has come as the 2008 financial crisis has receded further into memory and the US economy has maintained a decade-long bull market.
In this relatively calm environment, Ms Avakian and Mr Peikin have abandoned the “broken windows” style of enforcement pursued by their predecessors. That approach, hated by the securities industry, punished even minor infractions in the expectation it would deter larger wrongdoing.
Instead, they have emphasised the benefits of co-operation and sought to persuade securities lawyers that they are being “reasoned”, as Mr Peikin puts it. “We sort of resist the idea that any particular respondent can’t fight with us so we’re going to bully them,” he said.
“We’re not chest thumpers,” said Ms Avakian, arguing their approach is more effective in resolving cases to the benefit of investors.
This change in attitude has been combined with a shift in the sort of targets facing the SEC’S ire, even as the enforcement division’s overall activity has remained on a par with the final years of the Obama administration despite a fall in staff numbers.
Urska Velikonja, a professor at Georgetown University Law Center who tracks SEC enforcement cases, said there was a significant amount of continuity with the previous administration, but noted “fewer really large corporate cases” and more cases aimed at protecting ordinary investors.
“[Their] primary focus is the perceived benefit to retail investors whereas [Mary Jo White] was more concerned with conflicted transactions and practices of financial intermediaries,” she said, referring to the former SEC chair from 2013 to 2017.
The SEC’S enforcement regime since then has been marked by an aggressive effort to clean up the cryptocurrency market, largely taming an explosion in fraud linked to sales of digital “tokens”.
It has also pursued overcharging by mutual funds as part of its “share class selection disclosure initiative”, which has pulled in $135m for investors and driven new public company actions in the first half of 2019 that “remained at near-record levels”, according to Cornerstone Research.
