Amara Maple
Two years ago, a prominent group of five distinguished law professors – John Coates of Harvard Law, John C. Coffee, Jr. and Merritt Fox of Columbia Law, James Cox of Duke Law, and Joel Seligman of the University of Washington Law – united to establish what they termed "The Shadow SEC." This initiative, modeled after the long-standing Federal Reserve Shadow Open Market Committee, was conceived with a clear mission: to foster, encourage, facilitate, and disseminate crucial policy discussions and debates concerning federal securities laws and the Securities and Exchange Commission (SEC). The formation of this independent academic body underscores growing concerns about the trajectory and independence of the official SEC, particularly in recent years.
Since its inception, The Shadow SEC has actively engaged in public discourse, issuing eight significant statements addressing various aspects of securities regulation and the SEC’s operational integrity. These statements include analyses on the value of an independent SEC (February 24, 2025), the deepening crisis due to SEC staff and budget cuts (March 13, 2025), the imperative of vigorously enforcing FCPA Books and Records Requirements (May 12, 2025), and multiple calls for the careful review and preservation of the Public Company Accounting Oversight Board (PCAOB) (May 14, 2025, and July 3, 2025). Further statements have critically examined legislative proposals such as "The Not-So-GENIUS Act" (July 14, 2025) and raised concerns about regulatory overreach with "Too Much, Too Fast" (September 30, 2025), culminating in a formal comment on the SEC’s proposal to allow semiannual reports (June 1, 2026). These pronouncements serve as an ongoing critique and alternative policy framework to the SEC’s actions and proposed changes.
The Erosion of SEC Independence and Capacity
Professor Joel Seligman, a founding member of The Shadow SEC and a prolific author known for works like The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, recently shared his profound concerns about the current state of the SEC in an interview. He highlighted several critical distinctions between past challenges to the SEC and the present "ferocious attack" on its independence and effectiveness, particularly since January 2026.
A One-Party Commission and Structural Vulnerabilities
A primary concern raised by Professor Seligman is the current composition of the SEC, which, as of early 2026, has functioned as a one-party commission. With three commissioners appointed by Republicans and no Democratic commissioners, the agency deviates strikingly from its foundational statutory model. Federal law stipulates a five-person commission, with no more than three members associated with any single political party. This bipartisan structure is designed to ensure robust internal debate, diverse perspectives, and a balanced approach to complex financial regulation. The absence of minority commissioners, Seligman argues, grants the current chairman, Paul Atkins, and his fellow commissioners "unusual latitude" and shields them from the critical scrutiny that minority voices typically bring. Historically, even a single commissioner from the opposing party could significantly influence deliberations, prompting the commission to slow down, consider alternative viewpoints, and potentially alter policy decisions.
Seligman clarified that while the law states there shall be five commissioners, it does not compel their appointment at any given time. Furthermore, the SEC’s internal quorum rule is not a majority of five but rather "whatever number are in office," a regulatory loophole that allows a truncated commission to operate. This structural vulnerability, Seligman suggests, urgently calls for legislative amendment to mandate minority or bipartisan commissioners and to effectively overrule the existing internal quorum rule, thereby safeguarding the intended balance of power.
The Unitary Executive Theory and Judicial Challenges
Beyond the internal composition, the current period is marked by a broader philosophical assault on the concept of independent agencies. This challenge stems from the "unitary executive theory," a doctrine championed by some administrations that posits the President has absolute control over the executive branch, including independent agencies. This theory, central to initiatives like the Heritage Foundation’s Project 2025, fundamentally misunderstands the U.S. constitutional model of checks and balances. While proponents often cite Alexander Hamilton’s call for "energy in the executive" from the Federalist Papers, Seligman points out that Hamilton’s original context was the post-Revolutionary War era, where a dysfunctional confederation of states necessitated a strong executive to establish a functioning nation, not to centralize unchecked power.
This theoretical challenge has materialized in the courts, with the Supreme Court currently deliberating two cases that could determine whether commissioners of independent regulatory agencies, such as the SEC and the Federal Reserve, can be removed "at will" by the President, rather than only "for cause." A ruling allowing at-will removal would fundamentally undermine the SEC’s capacity to function as an expert, bipartisan agency, free from direct political pressure, a vision central to its creation. While there is some expectation that the independence of Federal Reserve Governors might be preserved, the outcome for other agencies like the SEC remains uncertain.
Seligman emphasized that "independent" does not mean "all-powerful." Agencies like the SEC are still subject to presidential appointments, congressional budget approval, and statutory limitations. However, the current confluence of a one-party commission and a judicial push to weaken "for cause" removal provisions creates an unprecedented vulnerability.
Expanded Presidential Influence and Financial Gain
Two additional factors exacerbate the current situation: recent Supreme Court decisions regarding presidential immunity and the long-term effects of the Citizens United ruling. The Supreme Court’s immunity decision, while acknowledging that a President can be charged with crimes post-office, has largely strengthened presidential power, limiting the ability to subpoena or bring litigation against a sitting President. This, Seligman argues, fosters an environment where a President can operate with less restraint on ethical conduct.
Compounding this is the Citizens United decision, which has dramatically increased the influence of wealthy donors in political campaigns by removing restrictions on independent political spending. This creates opportunities for those with significant financial resources to influence the President through tremendous campaign contributions. The unique and alarming aspect of the current situation, Seligman contends, is the combination of these devices for weakening the SEC with an unprecedented "willingness of the President to seek personal wealth and contributions to his family and his family trust." He highlights a systematic effort to use the Presidency for personal enrichment, a stark departure from previous administrations, even those with close ties to donors.
A Dismal Reversal in Enforcement
The landscape of SEC enforcement has undergone a significant and troubling transformation. Professor Seligman drew a stark contrast to the era of Stanley Sporkin, the legendary head of enforcement at the SEC decades ago. Sporkin’s philosophy of "chopping at the top"—aggressively pursuing major cases against the biggest firms to send a deterrent message down the line—represented a golden age of robust enforcement. Today, Seligman describes the situation as a "dismal, not complete, but large reversal."
The most dramatic shift is visible in the cryptocurrency space. Since Paul Atkins assumed leadership, virtually every major crypto case initiated during the preceding administration – including high-profile actions against entities like Binance and Coinbase, totaling over twenty cases – has been either withdrawn, dismissed, or settled within a span of fourteen months. This stands in stark contrast to the first Trump Presidency (2017-2021) under Chairman Jay Clayton, where the SEC brought 57 cases against crypto firms.
Further signaling a retreat from crypto oversight, the SEC has supported legislative initiatives such as the "GENIUS Act" and the "Clarity Act." The "GENIUS Act," criticized by The Shadow SEC, effectively seeks to limit the SEC’s power to regulate stablecoins, a critical component of the crypto industry. The "Clarity Act," currently moving through Congress, would further curtail the SEC’s ability to bring enforcement cases in this volatile sector. Adding to these concerns, President Trump has pardoned crypto executives, sending a clear signal of reduced accountability.
Seligman acknowledges that the SEC is still bringing some cases, but emphasizes that the "major cases initiated during the Biden administration have essentially been all closed down." He underscores the gravity of this shift, especially given the documented instances of major fraud, money laundering, and inadequate corporate leadership within the crypto industry. News reports have also detailed the current President’s personal financial gains, reportedly millions of dollars, from this very industry, further illustrating the potential for conflicts of interest.
Staffing Cuts and Leadership Departures
The capacity of the SEC to carry out its mandate has also been severely hampered by significant staffing reductions. Public data indicates a 20% decrease in overall SEC staff over a two-year period. More critically, there has been a significant exodus of senior staff, particularly those with extensive experience and the expertise to lead complex and high-impact investigations. These departures are deeply concerning, as they diminish the institutional knowledge and prosecutorial muscle of the enforcement division.
Further reflecting internal turmoil, Judge Margaret Ryan, appointed Enforcement Director, resigned just weeks after giving a speech in February where she asserted that reports of enforcement work being "tossed to the wayside are not only greatly exaggerated but flat out wrong." While Seligman could not confirm specific reports linking her resignation to resistance in pursuing cases against the President’s circle, he highlighted the broader issue of senior SEC attorneys in the crypto space departing, which severely impacts the agency’s ability to pursue these critical cases.
The Shadow SEC: A Voice of Resistance
Amidst these challenges, The Shadow SEC stands as a critical voice of independent expertise. As Professor Seligman explained, the group publishes its statements on the Columbia Law School’s Blue Sky Blog and formally files them with the SEC when rule proposals are made. A recent example is the proposal for semi-annual reporting, which garnered nearly 1,000 comments, with 96% opposing the SEC’s plan. Critics argue that such a change would hinder investors’ understanding, destabilize prices, erode confidence in management, and undermine the ability to monitor compliance. While Chairman Paul Atkins has argued that detailed rules, particularly under previous chairs like Gary Gensler, stifle innovation, drive firms abroad, and add needless costs, The Shadow SEC counters that the benefits of full and complete reporting far outweigh these perceived drawbacks. Seligman encourages concerned citizens to actively participate in the notice and comment process on the SEC website, emphasizing the importance of public input.
Broader Implications and the Political Landscape
The current situation also brings to light the "revolving door" phenomenon, where former SEC staffers often transition to lucrative positions in corporate law firms, many of which represent the very corporations that benefit from a weakened regulatory environment. While many former staffers may be privately "outraged," their employment can effectively gag them from public criticism. Seligman acknowledges this reality, noting that while some private firms might be critical of the SEC, the available jobs for former regulators are not unbounded, creating a powerful incentive for silence.
Despite corporate crime and corruption rarely becoming a primary political issue, Seligman believes the current circumstances could be different. He draws parallels to historical scandals like Teapot Dome, the vicuna coat affair, and the seismic impact of Enron and WorldCom, which transcended typical policy debates to become major political narratives. He argues that the widespread perception of the Trump administration "exploiting its position for financial benefit," coupled with public frustration over economic issues like rising gas and food prices, could make perceived corruption a significant theme in the 2026 elections. The sense that the President is prioritizing personal enrichment over public service, as evidenced by extensive media coverage of his financial dealings, has the potential to resonate deeply with voters.
The future of the SEC, therefore, hinges not only on internal structural reforms but also on the broader political climate. The outcome of the 2026 elections, particularly changes in control of the House or Senate, could significantly influence the agency’s direction. Until then, the weakening of the SEC’s independence, coupled with unprecedented allegations of presidential self-enrichment, presents a critical challenge to the integrity of U.S. financial markets and the bedrock principles of good governance.
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