Key Points
- The incoming Trump administration is expected to take a more lenient approach to prosecuting entities, reducing emphasis on bringing actions based on what may be viewed as novel theories.
- Prescriptive policies on self-reporting and cooperation by companies, recently adopted by the DOJ and CFTC, may be loosened.
- Legislation could clarify jurisdiction over cryptocurrency, possibly assigning that to the CFTC rather than the SEC. Both agencies are expected to adopt more crypto-friendly approaches, absent indicia of fraud.
Anticipating enforcement priorities under a new administration is challenging before the appointment of permanent leadership that will set priorities for policing corporate crime and market misconduct. Lessons from the first Trump term, however, suggest that the incoming administration will bring a more business-friendly environment.
DOJ Enforcement
The Department of Justice (DOJ) is expected to take a less aggressive stance toward companies, as the incoming administration has signaled a desire to reduce regulation and spur business and economic growth. Thus, the DOJ is less likely to pursue novel legal theories than it has been under the Biden administration.
An effective compliance program will generally remain a critical factor in determining whether to charge a company or settle.
The DOJ may also be more willing to accept nonprosecution or deferred prosecution agreements, rather than seek guilty pleas or convictions for corporations or their parent companies — a priority under the Biden administration. However, an effective compliance program will generally remain a critical factor in determining whether to charge a company or settle, so businesses should ensure that these programs are up to date and enforced.
The DOJ under the Biden administration implemented prescriptive policies on self-reporting and cooperation in order for companies to receive credit in resolving charges. The department in the next administration may consider modifying these policies to reduce companies’ obligations or enhance clarity about how to comply and obtain cooperation credit.
Finally, the DOJ may be less likely to believe that criminal enforcement is the proper means to prevent and deter corporate wrongdoing, and may defer more to civil regulators when it comes to addressing violations, as was articulated in a policy in effect in the first Trump administration.
SEC Enforcement
With the planned departure of two Democratic commissioners, including the chair, President-elect Donald Trump will have the opportunity to appoint two new commissioners on the Securities and Exchange Commission (SEC or the Commission). The Republican-majority commissioners will then select a new director of enforcement.
We expect that these leadership changes will lead to a reset in the SEC’s priorities. The SEC staff may focus primarily on its core areas, such as:
- Financial accounting and issuer disclosures that materially impact financial performance and reporting (e.g., non-GAAP disclosures).
- Insider trading.
- The Foreign Corrupt Practices Act.
- The protection of retail investors (e.g., Regulation Best Interest).
There could be a pullback in the pursuit of novel theories such as:
- “Shadow” insider trading.
- Technical internal controls-related cases with no accompanying substantive violations or that test the boundaries of enforcement’s statutory authority.
- Record-keeping violations arising from off-channel communications.
Regulations and related enforcement actions pertaining to environmental, social and governance (ESG) matters, where there is no clear connection to materiality to investors, could also see a reversal. (See “A Significant Shift Away From ESG and Toward Crypto Is Expected at the SEC.”)
As to cybersecurity, companies will likely be seen more as victims of cyberattacks rather than as culpable for failures related to cybersecurity controls that may have led to breaches.
The SEC, under the leadership of Republican commissioners, may also put a hold on issuing decisions on whether to settle or litigate certain types of cases, such as nonfraud cases against public companies. The decision-making pause may be either temporary, to assess the merits of the cases in accordance with new priorities, or permanent.
In addition, the Commission may be reluctant to authorize corporate penalties where there is no evidence of a corporate benefit from the violations. Ongoing actions against cryptocurrency entities, especially intermediaries, may be dismissed or become vehicles (e.g., through settled orders) that will provide clearer guidance and workable regulatory frameworks.
With respect to cryptocurrency, the incoming administration has signaled that it will adopt a more crypto-friendly approach, which may mean fewer investigations and enforcement actions. Retail investor protection likely will continue to be a priority, but we may see more initial coin offerings, fewer regulatory roadblocks (especially from the Division of Corporation Finance during its review of filings concerning crypto-related companies or projects) and the growth of crypto exchange-traded funds (ETFs). (See “Cryptocurrencies Stand To Gain From New Regulators and a Receptive Congress.”)
CFTC Enforcement
During the Biden administration, the Commodity Futures Trading Commission (CFTC) brought a number of cases for compliance failures under strict liability theories, such as the use of off-channel communications and errors in reporting swap data. Republican commissioners often criticized these actions as based on technical and unintentional violations of complicated rules or “regulation by enforcement” because the CFTC had not provided clear guidance through rulemaking.
With the Trump administration expected to nominate a new CFTC chair imminently, the new Republican-majority body will select the director of enforcement. This move is expected to significantly shift the CFTC’s enforcement priorities away from technical compliance issues and toward market manipulation and fraud.
The CFTC may also be more flexible in granting self-reporting credit to companies. To date, its staff’s practice has been to require companies to self-report issues on a timeline that Republican commissioners have criticized as unrealistic, and to not give self-reporting credit for issues that are required to be disclosed in annual reports to the CFTC. The CFTC might look to reverse that practice and grant self-reporting credit in more situations.
The Trump administration may push forward legislation that solidifies the CFTC’s jurisdiction over spot digital assets. In 2023, the House of Representatives passed a crypto bill with bipartisan support that would grant the CFTC jurisdiction over many digital assets, but it was never taken up by the Democratic-majority Senate nor endorsed by the Biden administration.
Over the past few years, the CFTC has brought a number of cryptocurrency cases, at times based on novel legal theories and over the dissent of the Republican commissioners. The new CFTC will likely be more concerned about whether the agency is reaching beyond its jurisdictional limit or stifling the development of cryptocurrency and other digital assets through such cases.
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This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.