Regulatory Update

To Enforce or Not to Enforce

04.23.25. On April 17, 2025, the U.S. Commodity Futures Trading Commission (“CFTC”) issued an advisory outlining criterion the agency will use to determine whether to refer potential legal violations to the Division of Enforcement. This effort to increase the transparency of its enforcement program follows a February 2025 advisory in which the CFTC allowed firms to receive self-reporting “credit” to receive lesser penalties. These changes signal how CFTC staff, under new leadership, think about the separate but related functions as both a regulator and as an enforcement agency.

April’s referral advisory alert stated violations may be referred to enforcement if a violation is deemed material under a reasonableness standard.A matter involving one or more of the following may be deemed material (a) egregious violations, defined as prolonged systematic deficiencies in the program, controls or the supervisory function, (b) intent, knowing and willful misconduct, and/ or (c) lack of remediation efforts. If under the reasonableness standard, the violation is not found to be material, the appropriate division of the CFTC will address the matter directly with the firm. Examples the CFTC gave on non-material violations include certain supervision or noncompliance issues (as opposed to conduct involving, for example, fraud, manipulation, or abuse).

Settler’s Regret: Sixteen Firms Denied Motions to Amend Orders

04.24.25.Sixteen firms are experiencing “settler’s remorse” after the SEC denied their request to revise previously agreed settlement terms related to violations involving off-channel communications. These firms had earlier admitted wrongdoing and accepted strict compliance obligations, including hiring independent consultants and reporting employee discipline.

The firms argued that newer settlements (those after January 2025) had more lenient terms, making their earlier agreements unfairly burdensome. They sought relief under Rule 60(b)(5), a relief from judgement order, claiming a change in circumstances. However, the SEC rejected the motion, emphasizing the importance of maintaining the finality of settlements and stating that regret over less favorable terms is not grounds for revision.

Commissioner Hester Peirce dissented, suggesting the circumstances warranted flexibility. Nonetheless, the SEC held firm, signaling its continued commitment to stringent compliance standards for off-channel communication violations, even as its stance in other regulatory areas may evolve. The takeaway: settling early may offer benefits, but it carries risks if regulatory expectations shift.

Cartier, Tiffany and Dior, Oh My!

04.22.25. The Commission has charged Ramil Palafox for orchestrating a global investment fraud that raised approximately $198 million and involved the misappropriation of over $57 million. Operating under his company, PGI Global, Palafox falsely marketed investment "membership" packages from January 2020 to October 2021, promising high returns from crypto asset and foreign exchange trading. The scheme also encouraged investor recruitment through referral incentives, resembling a multi-level marketing model.

Instead of investing the funds, Palafox used investor money for personal luxury purchases—including a Range Rover, $1.18 million in Cartier jewelry and purchases at luxury retailers including Nordstrom, Neiman-Marcus, Tiffany & Co., Louis Vuitton, Christian Dior, Chanel and Hermes totaling approximately $88,000—and operated a Ponzi-like scheme by using new investments to pay earlier investors. The SEC alleges that Palafox misled investors with claims of crypto expertise and a non-existent AI-powered trading platform. The SEC investigation is ongoing, with support from the FBI and IRS.

New Sheriff in Town: Paul S. Atkins Sworn in as SEC Chairman

04.21.25. Paul S. Atkins was sworn into office as the 34th Chairman of the Securities and Exchange Commission. Atkins was nominated by President Trump in January and confirmed by the U.S. Senate on April 9, 2025. Atkins was previously appointed by President George W. Bush to serve as a Commissioner of the SEC from 2002 to 2008. During his tenure, he advocated transparency, consistency and the use of cost-benefit analysis at the agency.

Atkins saying, “As I return to the SEC, I am pleased to join with my fellow Commissioners and the agency’s dedicated professionals to advance its mission to facilitate capital formation; maintain fair, orderly, and efficient markets; and protect investors. Together we will work to ensure that the U.S. is the best and most secure place in the world to invest and do business.”

Moreover, Atkins and the interim-Chairman Mark Uyeda have continued a focus on crypto-currency assets, from Commissioner Hester Peirce’s crypto-currency task force and the six cases against big names in cryptocurrency such as Coinbase, Kraken, and Robinhood dropped by the SEC. The SEC is ultimately retreating from broad regulation of digital assets, focusing only on those that clearly fit existing securities definitions (e.g., crypto ETFs). Certainly, the markets should be ready for a new era under Atkins leadership.

SEC Shuttering Some Regional Offices

04.25. The Department of Government Efficiency (“DOGE”) workers arrived at the SEC, aiming to streamline the regulatory agency. Some estimate that up to 15% of the 5,000 Commission staff have taken the one-time $50,000 buyout offered as a cost-cutting measure. In tandem with this, the SEC has also shuttered three of its ten regional offices in Los Angeles, Chicago and Philadelphia. Staff in Philadelphia and Chicago are expected to leave their offices by the end of August, and the L.A. staff must do so by the end of September.

SEC’s Division of Enforcement Powers Curtailed

In a rule finalized last month, the SEC stripped its enforcement director of the power to unilaterally issue formal investigation orders—an authority that previously allowed staff to issue subpoenas to companies and individuals under scrutiny. For the past 15 years, that power had been delegated to the SEC’s director of the Division of Enforcement – enabling SEC staff attorneys to issue subpoenas to companies and individuals without approval of the Commission.

Now, the Division of Enforcement must obtain approval from a majority of Commissioners before initiating a formal order. This means the division must draft a recommendation memo, which will be reviewed by other SEC divisions and the Commissioners, who can weigh in to ensure it aligns with the agency’s broader goals.

This added layer of review may result in some investigations proposed by the Division of Enforcement being delayed or potentially not moving forward at all.

Whistleblower Awards Continue

04.21.25.The SEC awarded approximately $6 million to joint whistleblowers. These individuals provided original and credible information that initiated an examination and contributed significantly to a successful enforcement action; rewards range from 10% to 30% of collected sanctions, provided the total exceeds $1 million.