Crenshaw’s Fiery SEC Farewell 🔥

You gotta love a government official who uncorks what they really believe on their way out the door, so today we salute Carolyn Crenshaw, departing Democratic member of the Securities and Exchange Commission. She delivered a farewell speech last week and holy poop, it was a genuine barn-burner about securities regulation and corporate governance.

Crenshaw spoke at the Brookings Institute, a Washington think tank that tends toward the Democratic end of the political spectrum. Across 3,000 words she delivered an unsparing criticism of the SEC’s new direction under new chairman Paul Atkins, warning of less investor protection, less transparency, and less oversight. 

“I’m concerned that the fundamental precepts upon which our markets have been built — tenets that have, by and large, kept our markets safe for both issuers and investors alike — are being eroded,” she said. “I fear that the very core of our intricate market structure is under attack… The appetite to deregulate has been rapacious; the analysis of the costs and benefits of our policies has been non-existent; and, the repercussions, I would argue, could be dire.”

Crenshaw was first appointed to the commission in 2020, and by law her term expires at the end of this month. She has been the only Democratic commissioner since her fellow Democrat Jaime Lizárraga resigned last year earlier than expected to care for his ill spouse. With Crenshaw now gone too, that means the SEC will have no Democratic representation at all until President Trump nominates a successor and the Senate confirms him or her. Lord only knows when that will happen, if ever.

As a practical matter, however, it’s not like having one or two Democrats on the SEC would make much difference. Atkins and his fellow Republicans Hester Peirce and Mark Uyeda (who both served as counsel to Atkins 20 years ago when he was a commissioner) have been merrily rolling along with their Trumpist agenda this year — and in fairness, the Democratic majority rolled right over Peirce and Uyeda during the Biden Administration too. 

The real point is what that agenda is as the majority rolls along. Which brings us back to Crenshaw’s speech.

The Hurry-Up Offense

Crenshaw attacked numerous new positions the SEC has adopted this year, and none of her attacks should surprise anyone. She opposes the idea of moving to semi-annual rather than quarterly reporting, since that leaves investors with less information. She opposes allowing companies to adopt mandatory arbitration with shareholders, since that defangs shareholders’ ability to threaten a lawsuit. She opposes the budget cuts that have led to a 20 percent staff reduction at the SEC, since that leaves the agency unable to exercise proper oversight.

Those complaints are all standard fare for Democratic commissioners under a Republican administration. What really caught my eye was this, emphasis added by me:

The Commission has also been shrouding its policymaking in darkness, shunning public comments and, instead, relying on hidden voices to drive its agenda. In a mad dash to implement its policy preferences, the Commission, again and again, has implemented a new vision through staff statements and extensions of the compliance dates of Commission rules without deigning to ask investors what they think and what they want. This approach flouts notice-and-comment rulemaking requirements under the Administrative Procedure Act.

Let’s all be clear about what Crenshaw is doing in the above paragraph, and especially in that last sentence. She’s telegraphing to other groups that they could sue the SEC over its new positions, and giving them tips on how. 

That’s nothing new. Plenty of SEC commissioners in the minority have issued dissenting statements about some new policy that read like roadmaps for future litigation. Flouting the notice-and-comment period or providing insufficient economic benefit analysis are two popular gripes, and Crenshaw cites both in her speech.

Now play this out. Either Crenshaw is correct that Atkins has engaged in shoddy policy development, and those policies will be invalidated in court; or she’s not, and the shoddy policy development will be upheld — and then Democrats will engage in the same procedural abuses next time.

That’s always been my beef with how the SEC is behaving these days, and why compliance and audit professionals should be concerned about it. The threat isn’t “regulatory uncertainty” that so many moan about so often. I mean, who on earth is still uncertain whether Republicans will deregulate and de-enforce whenever they have the chance? What blogs are they reading?

The threat is regulatory volatility. Democrats run in one direction when they have the chance; then Republicans run in the opposite direction when it’s their turn. 

That puts enormous strain on long-term planning of your policies, procedures, controls, and corporate objectives under the best of circumstances. Now Atkins is short-circuiting good administrative guardrails even faster, to push through even more of his agenda.

Either he’ll fail, and we’ve all wasted our time; or he’ll succeed, that means even more regulatory volatility in the future. Godspeed to compliance and audit programs in that world.

Removing Accountability Mechanisms

Now let’s go back to some of those specific policy changes that drew Crenshaw’s ire:

• A move from quarterly to semi-annual corporate reporting, which will probably take form sometime next year and go into effect in 2027;
• Defanging investors’ litigation rights by allowing public issuers to force their shareholders into arbitration;
• Giving corporations a stronger hand to keep shareholder proposals off the proxy statement.

The bigger picture behind all these specific ideas? An effort to remove investors’ ability to hold companies accountable for their actions. 

In Atkins’ world, investors should only hold companies accountable for financial performance; and they should only do so by selling the stock. No other considerations of corporate behavior should be within investors’ purview, so Atkins is methodically removing one mechanism after another that might allow them to do so.

That would rather neatly leave the SEC itself as the only authority able to hold companies accountable for abuses and misbehavior, through its enforcement actions — except, the SEC has been gutting its enforcement ranks and curtailing staffers’ ability to launch enforcement actions. And we all know that Atkins, like every other bureaucrat in the Trump 2.0 Administration, first and foremost tap-dances to whatever tune Trump tweets out on any given day. 

That is the true goal of Atkins’ project here. He wants to decimate all ways that investors might hold companies accountable, so that only his agency can hold companies accountable; and then leave the agency so emaciated that it will be too weak to do anything of real consequence.

None of this is what the SEC should be about, and Crenshaw is right to call it out until the very last minute she can.