SEC Makes it Official, Eliminates Delegation of Authority to Issue Formal Orders

Delegation of Authority to Director of the Division of Enforcement

The Securities and Exchange Commission (“Commission”) is amending its regulations with respect to the delegations of authority to the Director of the Division of Enforcement (“Director”) to eliminate the delegation of authority to issue formal orders of investigation. Formal orders designate the enforcement staff authorized to issue subpoenas in connection with investigations under the Federal securities laws. This amendment is the result of the Commission’s experience with its nonpublic investigations. The amendment is intended to increase effectiveness by more closely aligning the Commission’s use of its investigative resources with Commission priorities.

Recent SEC Guidance On Memecoins Suggests Broader Policy Change

… In the SEC’s case against Kraken, for example, the agency told a federal court that “pooling of resale proceeds” by a developer is not “required under Howey.”

The SEC’s new guidance confirms the opposite. It says that purchasers of memecoins make no investment in a common enterprise because their funds “are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.” The guidance also explains that memecoin purchasers do not expect profits derived from the efforts of others, another Howey requirement. Rather, the value of memecoins comes from “speculative trading and the collective sentiment of the market, like a collectible.”

The SEC’s memecoin guidance is most obviously consequential for the sale and promotion of memecoins, which are the subject of recent private class-actions brought by individual plaintiffs. But it has broader implications for all secondary-market transactions in digital assets, including on exchanges. In secondary-market transactions on exchanges, purchasers’ funds likewise “are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.” Thus, the SEC now seems to recognize that under a proper application of the Howey test, those transactions are beyond the agency’s reach, as defendants have consistently argued in the SEC’s prior enforcement cases.

With Its Independence Removed, the SEC is Now Being Rapidly Dismantled

To be clear, what is taking place at the SEC right now is not like those changes that typically occur with each new change in administration. Different president, different priorities. We get it. No, what’s taken place at the SEC in recent weeks is of an unprecedented scale that most capital market participants will find unsettling.

From its inception in the 1930s, and as clearly expressed in the related legislation, Congress designed the SEC as a bipartisan, expert, and independent agency. That’s gone now. Donor influence and political meddling have entered the chat.

The changes we list for you below go much further than the SEC now reporting up to the White House. The related executive order that took away its independence was quickly followed by a series of debilitating cuts in personnel and facilities. Picture this: If the SEC were an automobile, you’d have a car that still looks the same but sputters and barely drives because so many of its systems and parts got removed.

Two Companies Hit with Separate AI-Washing Securities Lawsuits

A recurring theme at the recent PLUS D&O Symposium related to the risks associated with the rise of artificial intelligence (AI), risks that may among other things translate into D&O claims. Among other AI-related litigation concerns is the fear that companies seeking to catch some of the AI buzz will overstate their AI prospects. Last week, in the latest examples of the kinds of AI-related D&O claims that can arise, two companies were sued in separate securities lawsuits alleging that the companies overstated their AI capabilities or prospects – a phenomenon that has been described as “AI washing.”