Acting SEC Chairman Limits Delegated Formal Order Authority


Posted on February 21, 2017, by James G. Lundy, Mary P. Hansen and Victoria L. Andrews in Enforcement, Formal Order, General. Comments Off on Acting SEC Chairman Limits Delegated Formal Order Authority

Acting SEC Chairman Michael Piwowar has apparently revised the staff’s ability to subpoena records and investigative testimony (“formal order authority”) by returning the authority to grant formal order authority to the agency’s Director of Enforcement. While the SEC has not formally recognized this policy shift, multiple sources, including Law360 and the Wall Street Journal, have reported that Acting Chair Piwowar has recently implemented this change, which revokes the delegated authority to regional directors and enforcement associate directors to approve the staff’s requests for formal order authority.

In 2009, under Chair Mary Schapiro and as part of certain initiatives to enhance enforcement’s capabilities in the aftermath of the financial crisis, the SEC delegated its authority to authorize formal order authority to the Director of Enforcement. The Director of Enforcement, in turn, delegated this authority to regional directors and enforcement associate directors. As a result, the staff could, within an hour (when necessary) obtain formal order authority, as compared to the days, weeks, or at times months, that it had historically taken to obtain formal order authority from the Commission. Not unexpectedly, the number of formal investigations opened by the staff dramatically increased.

Acting Chair Piwowar’s recent move eliminates the second layer of delegation by limiting the 2009 delegated authority to the Director of Enforcement. While the effect of this change on the number of SEC investigations remains uncertain, multiple sources report that Acting Chair Piwowar enacted the policy not to reduce that number, but to bring greater oversight and consistency to the investigation process. Further, while he is not authorized to take the step alone, as it would require a vote of the Commission which is currently comprised of only two members, Acting Chair Piwowar and Commissioner Kara Stein, the acting chair has asked the SEC’s general counsel to consider whether the agency should further restrict formal order authority by returning the power to grant it to the SEC Commissioners. Thus, at Acting Chair Piwowar’s direction, the SEC is considering a return to the pre-2009 formal order authority review and approval process.

The revocation of the regional and associate directors’ delegated ability to approve formal order authority is the latest action taken by Acting Chair Piwowar, who stepped in as acting chairman after former Chair Mary Jo White stepped down at the conclusion of the Obama administration. His actions have included requesting that all authorities granted to staff members be reviewed and that public disclosure rules required by Dodd-Frank be reconsidered.  Such actions indicate efforts to begin the reshaping of the agency as it awaits the confirmation of President Trump’s nomination for chairman, Jay Clayton.





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