DOGE Comes for the SEC

Compliance and audit professionals are hearing today that the DOGE mind virus has now reached the Securities and Exchange Commission, with significant cuts in personnel and resources looming. Let’s take a look at all this to understand what’s really going on at the SEC and how those changes are likely to affect corporate compliance and audit teams.

First and most notably, on Monday news reports surfaced that the SEC has made $50,000 buyout offers to all eligible employees (those who have been with the agency since before January 2024) if they quit or resign by April. Apparently this is a prelude to future reduction-in-force job cuts the SEC might make after that.

Second, word also came over the weekend that the Government Services Administration plans to close SEC offices in Los Angeles and Philadelphia, and wants to close the SEC regional office in Chicago as soon as the GSA can figure out how and when it can wriggle out of the Chicago lease without incurring significant financial penalties. News also broke at the end of February that the SEC plans to lay off all its regional office directors, too.

So what does all this mean? It means the SEC will be working at diminished capacity, where scofflaws can enjoy a free ride while good corporate citizens grit their teeth and endure a dysfunctional relationship with your regulator.

Meanwhile, here’s what these DOGE cutbacks do not do.

Adventures in Weakness and Waiting

First, they do not bring any savings to the taxpayer, because the Securities and Exchange Commission isn’t funded by taxpayer dollars. The SEC budget is approved by Congress, but the funds actually come from fees the SEC imposes on firms that it oversees. So the original promise of DOGE — that it would find redundant and obsolete regulations to repeal, which would lead to fewer government employees, which would reduce federal spending and close the deficit — does not apply here. 

Second, these cutbacks don’t reduce any regulatory burden to corporations, because they only address personnel. Almost all the regulatory burdens your company had before these staff cutbacks were unveiled will still remain in place now. The SEC will just have fewer people available on the other end of the phone when you try to engage with the agency on an issue.

If acting chairman Mark Uyeda truly believes that the SEC’s resources and priorities are mis-allocated, that’s fine. In fact, he’s probably right. But in that case, Uyeda should identify what those misplaced priorities are, and then engage in targeted RIFs or personnel re-assignments to bring the SEC’s manpower in line with a smaller or more focused mission.

That is not what Uyeda is doing here. He’s just making promises of money to reduce headcount, period. The only practical effect of this will be to undermine the SEC’s ability to do work, and undermine it as quickly as possible. If these buyouts lead to agency dysfunction (as if they’ll lead to anything else…), then the agency will just try to rehire those people later. 

Indeed, one telling clue in the SEC’s buyout memo is that anyone who takes the $50,000 payout and is subsequently rehired sometime in the future must pay the money back. That’s a sensible proviso, but it’s also a tacit admission that the agency is simply taking a shotgun approach to cost reduction to keep Elon Musk happy, rather than thinking about how to make the SEC a better, more efficient agency. 

Third, none of these reductions will lighten the regulatory compliance burden for good corporate citizens trying to comply with SEC rules, because the only practical effect is to reduce agency manpower while almost all agency rules still remain in place. 

You’re waiting on the Division of Corporation Finance to reply to a comment letter? Well keep waiting, because the SEC will have fewer staff. You want a staff review of a confidential registration statement? Keep waiting, because the SEC will have fewer staff. You’re in discussions to settle an enforcement action, or waiting for a reply to a no-action letter, or you want a decision on a whistleblower award submission you made? Wait, wait, wait. (OK, maybe not on enforcement matters, because we all know the SEC is going to give way on enforcement like a soggy grocery bag.)

Indeed, let’s note that even as Uyeda is implementing Elon’s “cut first, ask questions later” directive, the agency is moving ahead with other projects that will impose more duties on personnel. Just yesterday the Division of Corporation Finance said it will expand its confidential review of draft registration statements to more filers. A good idea to stimulate more IPOs and capital formation? Maybe — but more specifically, this will put more work on the Division of Corporation Finance even as the agency is trying to shove more employees out the door. So you’ll either get a timely review or a competent review, but you probably won’t get both.

An Effective SEC Needs People

Good corporate citizens who want a productive relationship with the SEC while you try to do the right thing — you’re going to suffer, because the SEC is amputating its capacity to do anything in a prompt and competent manner. Then again, that seems to be the DOGE goal for all government agencies, so we shouldn’t be surprised.

Scofflaws itching to see what you can get away with, on the other hand — this is your big chance. Just as the SEC is preparing plans to exempt more companies from audits of internal control, to curtail shareholder access to proxy statements, and to give retail investors more access to private company investment opportunities. What could go wrong?

None of this is to say the SEC shouldn’t engage in a review of its rules and compliance obligations, to see how it can alleviate regulatory burdens and stimulate the capital markets. The agency absolutely should, and it has some great thinkers there who could lead that discussion. 

This is just not the way to go about that goal. This is how you diminish an agency’s capacity to fulfill its mission and let everyone else suffer the consequences. Compliance and audit professionals, plan accordingly.