Joel Seligman and the Shadow SEC

In a significant move to foster critical discourse and oversight of federal securities laws, a distinguished quintet of legal scholars formed what they termed The Shadow SEC two years ago. This initiative, drawing inspiration from the long-standing Federal Reserve Shadow Open Market Committee, aims to actively "provide, encourage, facilitate, and distribute policy discussions and debates relating to the federal securities laws and the Securities and Exchange Commission (SEC)." As of mid-2026, the group has issued eight public statements, addressing a range of pressing issues concerning the regulatory body’s independence, operational integrity, and enforcement posture.

The Genesis and Mission of The Shadow SEC

The formation of The Shadow SEC in mid-2024 brought together some of the most respected voices in corporate and securities law. Professor John Coates of Harvard Law, Professor John C. Coffee, Jr., and Professor Merritt Fox of Columbia Law, Professor James Cox of Duke Law, and Professor Joel Seligman of the University of Washington Law School collectively identified a growing need for an independent, academic platform to scrutinize and comment on the direction of the Securities and Exchange Commission. Their model, the Federal Reserve Shadow Open Market Committee, established decades earlier, served as a precedent for how external expert analysis could constructively influence a powerful regulatory institution. The Committee’s foundational goal is to ensure robust, informed debate, particularly during periods of significant policy shifts or perceived threats to the SEC’s core mission. Their statements, published on platforms such as the Columbia Law School’s Blue Sky Blog, cover critical topics, reflecting their commitment to public engagement and policy advocacy.

A Chronology of Shadow SEC Statements:

Since its inception, The Shadow SEC has actively engaged with policy matters, releasing timely analyses and recommendations. Their statements provide a detailed look at their areas of concern:

• February 24, 2025: "The Value of an Independent SEC"
• March 13, 2025: "The Crisis Deepens as SEC Staff and Budget Cuts Are Directed"
• May 12, 2025: "FCPA Books and Records Requirements Must Be Vigorously Enforced"
• May 14, 2025: "The PCAOB Should be Carefully Reviewed, Not Hastily Abolished"
• July 3, 2025: "The PCAOB Should be Preserved"
• July 14, 2025: "The Not-So-GENIUS Act"
• September 30, 2025: "Too Much, Too Fast"
• June 1, 2026: "Comment on SEC Proposal to Allow Semiannual Reports"

These publications underscore the group’s consistent focus on maintaining the SEC’s independence, ensuring adequate resources, and upholding rigorous enforcement standards.

Professor Joel Seligman on the Unprecedented Challenges Facing the SEC

Professor Joel Seligman, a founding member of The Shadow SEC and a prolific author known for works such as The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, recently articulated his profound concerns regarding the current administration’s approach to the SEC. In an interview, Seligman highlighted four distinct factors that, in his view, differentiate the present "attack" on the SEC from previous challenges, marking it as particularly severe.

1. The One-Party Commission:
A central point of Seligman’s concern is the current composition of the SEC. Since January 2026, the commission has been operating with only three commissioners, all appointed by Republicans and led by Chairman Paul Atkins. This configuration, Seligman notes, is "strikingly inconsistent with the statutory model," which mandates a five-person commission with no more than three members associated with any one political party. The absence of Democratic commissioners, he argues, eliminates the "robust internal debate" that minority commissioners typically bring, allowing the current leadership "unusual latitude to pursue new ideas" without critical internal challenge.

While the law states the SEC shall have five commissioners, it does not explicitly compel five appointments at all times. Moreover, the SEC’s internal quorum rule allows for decisions to be made by whatever number of commissioners are in office, not necessarily a majority of five. Seligman advocates for statutory amendments to explicitly require bipartisan representation and to overrule the current quorum rule, thereby reinforcing the commission’s intended bipartisan nature.

2. The Assault on Independent Agencies and the Removal-with-Cause Debate:
The second critical factor, according to Seligman, is a "ferocious attack on the concept of independent commissioners" under the current administration. This attack challenges the long-standing principle that commissioners of certain regulatory agencies, like the Federal Reserve System and potentially the SEC, can only be removed "with cause" – a protection designed to insulate them from direct political pressure.

Two cases currently pending before the Supreme Court are poised to determine the constitutionality of these "for-cause" removal provisions. Seligman suggests there’s a "good possibility" the Court might rule that, at least for agencies like the SEC, commissioners could be removed "at will" by the President. Such a ruling, he warns, would severely undermine the SEC’s capacity to function as an expert agency, proceeding in a bipartisan manner to address complex issues within the financial and securities industries. This aligns with the "unitary executive theory," a concept championed by some in the administration and groups like the Heritage Foundation’s Project 2025, which posits that the President should have ultimate control over all executive branch agencies, including those traditionally considered independent. Seligman argues this theory fundamentally "misunderstand[s] our constitutional model which is based on checks and balances."

3. Expanded Presidential Immunity and Power:
Seligman identifies the Supreme Court’s recent decision on presidential immunity as a third factor contributing to the weakening of oversight. While not delving into the specifics of the case, he notes that the ruling "limits the ability… to subpoena the President, limits the ability to bring litigation against the President while he is in office." Although the Court acknowledged that a President can be charged with crimes post-office, the immediate effect, in Seligman’s view, has been to "strengthen the power of a President not to adopt ethics rules, not to doubt that he has great power to proceed largely without restraint." This perceived expansion of executive power can create an environment less conducive to accountability, indirectly impacting regulatory bodies like the SEC.

4. Campaign Finance and Personal Enrichment (Citizens United):
The fourth factor Seligman points to is the 2010 Citizens United v. Federal Election Commission Supreme Court decision. This ruling, by equating money with speech, significantly altered campaign finance landscapes, giving "opportunities to those with great wealth to try and influence the President by providing tremendous contributions to the President’s political campaigns." While presidential administrations have historically had close ties to donors, Seligman emphasizes the "systematic effort to use the Presidency to enrich oneself while in office" as an unprecedented aspect of the current situation. This alleged pursuit of personal wealth, combined with the other factors, creates a unique vulnerability for the SEC’s independence and enforcement mission.

Erosion of Enforcement and Oversight

The perceived weakening of the SEC is particularly evident in its enforcement activities, a domain historically central to its role in maintaining market integrity.

Historical Context of SEC Enforcement:
Seligman draws a stark contrast with previous eras, particularly recalling figures like Stanley Sporkin, who served as the SEC’s Director of Enforcement. Sporkin was known for his aggressive "chop at the top" strategy, targeting major firms to send a powerful deterrent message across the industry. This approach, along with the contributions of others like Irv Pollack, established a "great SEC enforcement program for some decades."

Current State of Enforcement, Especially in Cryptocurrency:
Today, Seligman describes the enforcement landscape as a "dismal, not complete, but large reversal." He highlights the cryptocurrency space as a prime example. Since Chairman Paul Atkins’ arrival, "virtually every major crypto case – Binance, Coindesk, something like over twenty cases – were either withdrawn, dismissed or settled within the last fourteen months or so." This dramatic shift is further compounded by the SEC’s support for legislative initiatives like the "GENIUS Act," which would limit the SEC’s power over stablecoins, and the "Clarity Act," which would further curtail its enforcement capabilities in the crypto sector. Adding to these concerns, President Trump has reportedly pardoned crypto executives.

This current posture is a dramatic departure from the first Trump Presidency (2017-2021) under Chairman Jay Clayton, when the SEC brought 57 cases against crypto firms. Seligman finds this "night and day change" unprecedented, especially given the documented instances of "major fraud," "money laundering," and "inadequate corporate leadership" within the crypto industry. He also notes media reports documenting the President allegedly "profiting by several millions of dollars from this industry," which he considers "shocking and different from any previous activities we have seen from any President of this magnitude."

Staffing Cuts and Leadership Departures:
Compounding the enforcement challenges are significant reductions in SEC staffing. Seligman reports that public data indicates a "twenty percent" decrease in overall staff over a two-year period. More critically, there have been "significant departures" of senior staff – those with the experience and expertise "most likely to be able to lead the most important cases." While regional offices haven’t been entirely shut down, these senior-level losses pose a substantial threat to the agency’s institutional knowledge and capacity to handle complex investigations.

The recent, brief tenure of Judge Margaret Ryan as Enforcement Director further illustrates the internal pressures. Appointed last year, she stated in February that "reports that enforcement work at the SEC has been tossed to the wayside are not only greatly exaggerated but flat out wrong. But I will say that I am far more concerned with the quality and impact of the enforcement actions that we bring than with chasing numbers." However, she resigned just weeks later, amidst reports of resistance to pursuing cases against individuals within the President’s circle. Seligman, while not having direct knowledge of Ryan’s specific case, reiterates his broader concern over the exodus of experienced attorneys, particularly in the crypto enforcement division.

The Shadow SEC’s Advocacy and Public Engagement

In the face of these challenges, The Shadow SEC remains a crucial voice for regulatory integrity. The group actively publishes its statements on platforms like the Columbia Law School’s Blue Sky Blog and plans to formally file these statements with the SEC during rule-making proposals. Their recent "Comment on SEC Proposal to Allow Semiannual Reports" highlights their direct engagement. This proposal, championed by Chairman Atkins who argues that detailed rules "were stultifying innovation, drove some firms abroad and needlessly added costs," faced overwhelming opposition. Of approximately 1,000 comments received, 96% were against the change, citing concerns that it would hinder investors’ understanding, destabilize prices, and undermine confidence in management and compliance.

The Shadow SEC counters Atkins’ arguments, asserting that "the benefits of full and complete reporting far outweigh those apparent costs." They actively encourage the public to participate in the notice and comment process for proposed rules, underscoring the importance of citizen engagement in shaping financial regulation.

Broader Implications and Future Outlook

The current state of the SEC has profound implications for investor protection, market stability, and the overall integrity of the U.S. financial system. A weakened, politicized SEC could lead to reduced corporate accountability, increased instances of fraud, and diminished investor confidence, potentially deterring capital formation and economic growth.

The "Revolving Door" Challenge:
The "revolving door" phenomenon, where former SEC staffers transition to lucrative positions in corporate law firms representing regulated entities, adds another layer of complexity. Many former employees may be "outraged at what is happening at the SEC," but their new employment effectively "gags" them from public criticism. While some firms might specialize in plaintiff-side litigation, the career paths available often incentivize a less confrontational stance towards corporate clients, posing a practical challenge to organized dissent from within the legal community.

Corporate Crime as a Political Issue:
Despite these challenges, Seligman believes that corporate crime and corruption, particularly concerning the alleged "systematic effort to use the Presidency to enrich oneself," could become a significant political issue in the upcoming 2026 elections. He draws parallels to historical scandals like Teapot Dome, vicuna coats, Enron, and WorldCom, which broke through public consciousness. The perception that the administration is "exploiting its position for financial benefit," coupled with public dissatisfaction over economic issues like gas and food prices, could "break through and have political consequences." He suggests that "a repulsion at what appears to be corruption in the Trump administration" will likely be a central theme explored during the 2026 campaign.

Until then, the weakening of the SEC’s independence, alongside the alleged "willingness of President Trump and others in his administration, to receive benefits of unprecedented magnitude," presents a critical juncture for financial regulation and democratic accountability in the United States. The 2026 elections, Seligman concludes, may ultimately determine the future direction and efficacy of the Securities and Exchange Commission.