SEC's Waldon Expects Changes in Calculating Penalties, Less "Creativity" in Enforcement Theories

SEC, CFTC Leaders Predict Shifting Priorities, Penalty Policies

“Penalties — remedies in general, but penalties included — are an area where I do think it’s likely we’ll see changes,” Sam Waldon, acting director of the SEC’s enforcement division, said at an industry conference in Austin Monday.

Penalties won’t be lower in every case, but the SEC’s process to determine punishments will be different, he said.

“With this commission, we’re going to have to show our work and we’re going to have to be able to point back to the legal basis for how we got to a penalty — which is always the case,” Waldon said. “But I think we’re probably going to have to do more.”

Waldon referenced the SEC’s 2006 policy statement about its approach to enforcement penalties, which says the agency needs to be careful not to impose penalties that ultimately punish company shareholders. President Trump’s pick to lead the SEC, Paul Atkins, who was a commissioner at the time and signed off on that directive, has frequently spoken out against large corporate penalties.

Fewer than 500 people are responsible for $3.2 trillion of artificial crypto trading

Market manipulation in the cryptocurrency world is rampant—and fewer than 500 people are responsible for as much as $250 million a year in profits and over $3.2 trillion in artificial trading, according to a new study published on Cornell University’s preprint server arXiv.

Honglin Fu and colleagues at University College London have developed a tool that can track the coordination of pump-and-dump schemes, where crypto coin holders artificially inflate the price of a cryptocurrency by touting fake recommendations and generating nonexistent hype, making ordinary people intrigued enough to buy into a cryptocurrency before the owners then pull their stake and crash the price.

Telegram, a popular encrypted messaging platform widely used by cryptocurrency investors, has become a favored tool for coordinating these schemes. Perseus, the tool Fu and his colleagues developed, identified more than 400 so-called masterminds that helped seed fake hype for crypto coins through millions of Telegram messages. By eavesdropping on Telegram chats where pump-and-dump schemes are discussed, then training Perseus on what happens, the team were able to identify nearly 750,000 messages organizing such scams.

Who Is Jay Clayton? Trump SDNY Pick to Police Wall Street at DOJ Crown Jewel

His first challenge is to get the office out of Trump’s crosshairs. Just weeks ago, its resistance to doing the president’s bidding on the Adams case prompted Justice Department leaders to dig out text messages to paint well-regarded attorneys as political hacks.

Clayton has pointed to his record running the Securities and Exchange Commission free of friction and undue influence during Trump’s first term, even as the agency butted heads with cryptocurrency entrepreneurs and Elon Musk (before they became Trump acolytes). Yet the new role could prove more treacherous.

“I have never known Trump to have any interest in the SEC or interfering there. He probably thinks it’s the football conference,” said Whitney Tilson, a former hedge-fund manager running to be mayor of New York. “On the other hand, he’s absolutely determined to make the Justice Department an arm of his agenda and completely politicize it. And if Clayton doesn’t go along with it, he’ll be fired.”

Interim SEC chief cast sole vote against suing Musk

Days before Republicans took the helm of the U.S. Securities and Exchange Commission in January, the agency’s five commissioners held a closed-door vote on whether to sue Elon Musk.

Since 2022, the agency had been investigating whether the billionaire, a close ally of incoming President Donald Trump, had violated securities laws by disclosing too late his purchase of shares of Twitter, now known as X, prior to acquiring the company that year.

Four of the five commissioners, including Republican Hester Peirce, voted yes, three sources said. The fifth – Republican Mark Uyeda, now the acting head of the SEC – voted no, the people said.

The week after the 4-1 vote in favor, the SEC filed a lawsuit against Musk on January 14.

The details of the vote – including Uyeda’s dissent – are reported here for the first time.

In the days before the vote, Uyeda pressed enforcement staff involved in the Musk case to sign pledges that the case was not driven by politics, according to two of the sources. That effort was first reported by Bloomberg News . The staff refused to sign the pledge, as it is not typical SEC practice, the sources told Reuters. Two of the sources said Uyeda and his fellow Republican Peirce took issue with what the SEC wanted Musk to pay – giving up $150 million in alleged unjust enrichment plus a penalty. Nonetheless, Peirce joined with the three Democrats in voting to sue.

The SEC Crypto Roundtable Was a Missed Opportunity

Digital assets do not cleanly fit into either the “security” or “commodity” bucket. They are something entirely new. But the distinction between securities and commodities matters under the law because the SEC regulates securities and the CFTC regulates products that include commodities.

Congress is considering new legislation that resembles last year’s FIT21 bill. That legislation will move past the outmoded Howey test and sharply define how particular digital assets are classified.

Friday’s roundtable, which included a dozen or so prominent crypto lawyers alongside members of the SEC’s crypto taskforce, should have served as a jumping off point for ideas and proposals that the SEC could use as input to legislators considering the new legislative framework for crypto. But, instead, much of the discussion focused on years-old debates about the four-party Howey Test, and philosophical discussions about the nature of securities.

SEC facing ‘death by 1,000 cuts,’ professors warn

Doing more with less will also likely slow down the SEC’s workflow, sources said.

“It is just a truism that a smaller staff can do fewer things and so there may be longer lines (for) exemptions, there may be a longer period to get no-action requests, but that will depend on how Atkins, frankly, wants to staff his agency,” Dial said. “Will they have as many people doing enforcement, will they drop certain enforcement priorities? They can pick and choose which of the functions of the agency they find most important and most relevant to the ongoing agenda.”