Amara Maple
Two years ago, a distinguished collective of five prominent 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 School — united to establish what they termed The Shadow SEC. This independent body, modeled after the long-standing Federal Reserve Shadow Open Market Committee, was conceived with the explicit aim to "provide, encourage, facilitate, and distribute policy discussions and debates relating to the federal securities laws and the Securities and Exchange Commission (SEC)." Their formation signals a growing concern among legal academics regarding the direction and integrity of the nation’s primary securities regulator.
The Genesis and Mission of the Shadow SEC
The establishment of The Shadow SEC in 2024 emerged from a collective apprehension among these leading legal scholars regarding what they perceived as an erosion of the foundational principles underpinning the Securities and Exchange Commission. Drawing inspiration from the Federal Reserve Shadow Open Market Committee, which historically provided an external, expert critique of monetary policy, the Shadow SEC sought to create a similar forum for robust, independent analysis of federal securities laws and the SEC’s operations. Its founders, all highly respected figures in corporate and securities law, bring decades of academic and practical experience to their critique, lending significant weight to their observations.
Since its inception, The Shadow SEC has actively engaged in public discourse, issuing eight formal statements that critically examine various aspects of SEC policy, structure, and enforcement. These statements, typically published on platforms such as Columbia Law School’s Blue Sky Blog, serve as a public record of their concerns and recommendations. The group also commits to filing these statements directly with the SEC when relevant rule proposals are open for public comment, ensuring their expert perspectives are formally registered within the regulatory process.
A Chronology of Concerns: Shadow SEC Statements
The statements released by The Shadow SEC since its formation highlight a consistent pattern of concern regarding the integrity and effectiveness of the actual SEC. These eight pronouncements, spanning from early 2025 to mid-2026, cover critical areas of securities regulation:
- February 24, 2025: The Value of an Independent SEC – This inaugural statement underscored the crucial role of an autonomous regulatory body, free from undue political influence, in maintaining fair and orderly markets and protecting investors.
- March 13, 2025: The Crisis Deepens as SEC Staff and Budget Cuts Are Directed – This statement highlighted the detrimental impact of reduced staffing and budgetary allocations on the SEC’s capacity to fulfill its mandate effectively.
- May 12, 2025: FCPA Books and Records Requirements Must Be Vigorously Enforced – The professors advocated for strong enforcement of Foreign Corrupt Practices Act (FCPA) provisions, crucial for combating international bribery and ensuring corporate transparency.
- May 14, 2025: The PCAOB Should be Carefully Reviewed, Not Hastily Abolished – This statement addressed concerns about the Public Company Accounting Oversight Board (PCAOB), emphasizing the importance of its role in overseeing auditors and advocating for careful consideration rather than radical dismantling.
- July 3, 2025: The PCAOB Should be Preserved – A follow-up to their earlier statement, reiterating the necessity of maintaining the PCAOB for robust oversight of public company audits.
- July 14, 2025: The Not-So-GENIUS Act – This statement critically analyzed proposed legislation, dubbed the "GENIUS Act," which the Shadow SEC argued would unduly limit the SEC’s authority over stablecoins, an increasingly significant segment of the cryptocurrency market.
- September 30, 2025: Too Much, Too Fast – This statement likely critiqued a rapid pace of regulatory changes or proposed reforms that, in the Shadow SEC’s view, could destabilize markets or undermine investor protections.
- June 1, 2026: Comment on SEC Proposal to Allow Semiannual Reports – This formal comment opposed a proposal to shift from quarterly to semi-annual reporting, arguing it would reduce transparency and harm investors’ ability to monitor their investments and corporate governance.
These statements collectively paint a picture of an expert community increasingly alarmed by what they perceive as systemic threats to the SEC’s efficacy and independence.
Erosion of Independence: Professor Seligman’s Analysis
Professor Joel Seligman, a co-founder of the Shadow SEC and a leading authority on securities law, including authoring The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, recently articulated a profound concern about the nature of contemporary attacks on the SEC. In an interview, Seligman highlighted four key factors distinguishing the current situation from previous periods of scrutiny or political pressure on the agency.
The "One-Party" Commission and Statutory Intent:
Seligman points to the striking anomaly of the SEC operating as a "one-party commission" since January 2026. The current commission consists of three Republican-appointed members, led by Chairman Paul Atkins, with no Democratic commissioners. This composition directly contravenes the foundational statutory model for the SEC, which stipulates a five-person commission with no more than three members associated with any single political party. While the law does not compel the appointment of five commissioners at all times, the absence of minority party representation fundamentally alters the dynamics of internal debate and decision-making.
The current situation grants the majority "unusual latitude to pursue new ideas" and removes the "robust internal debate which minority commissioners sometimes bring to the SEC." Seligman recounts how Chairman Atkins, during a previous term, often raised dissenting issues, prompting the commission to slow down, consider alternative viewpoints, and potentially alter its course. This crucial function of internal checks and balances is absent in a one-party configuration. Seligman advocates for an urgent amendment to the SEC statute to mandate bipartisan commissioners and to effectively overrule the agency’s internal quorum rule, which currently allows decisions to be made by whatever number of commissioners are in office, regardless of vacancies.
The Unitary Executive Theory and Judicial Challenges to Independence:
A second, "ferocious attack" on the concept of independent agencies stems from the "unitary executive" theory, a presidential doctrine asserting that the President holds ultimate authority over the executive branch, including independent agencies. This theory, famously underpinning the Heritage Foundation’s Project 2025, challenges the statutory provisions of many regulatory bodies, such as the Federal Reserve, which allow commissioners to be removed only "for cause."
Seligman notes that the Supreme Court currently has two cases pending that could determine whether these "for cause" removal provisions are constitutional for commissions like the SEC. A ruling allowing for "at will" removal of commissioners would fundamentally undermine the SEC’s capacity to operate as an expert, bipartisan agency designed to tackle complex financial and securities issues objectively. While there is hope that the independence of Federal Reserve Governors might be preserved in a separate case, the outcome for other commissions remains uncertain, posing a significant threat to regulatory autonomy.
It’s crucial to understand that "independence" for agencies like the SEC is not absolute. They are not self-funding, relying on Congress for budget allocations and presidential appointments for leadership. Congress also retains the power to limit agency authority through legislation. However, the current assault on the "at will" appointment principle, combined with a one-party commission, creates an environment where presidential influence could become overwhelming.
Strengthened Executive Power and Campaign Finance Influence:
Seligman identifies two additional factors contributing to the unique nature of the current challenge. First, recent Supreme Court decisions concerning presidential immunity have significantly strengthened the executive’s power, limiting the ability to subpoena or litigate against a sitting president. While referring to the possibility of charges post-office, the decisions have "strengthened the power of a President not to adopt ethics rules, not to doubt that he has great power to proceed largely without restraint." This newfound judicial reinforcement of executive authority creates a less accountable environment for presidential actions.
Second, the Citizens United Supreme Court decision has dramatically reshaped campaign finance by allowing unlimited independent political spending by corporations and unions. Seligman argues this decision has "gave opportunities to those with great wealth to try and influence the President by providing tremendous contributions to the President’s political campaigns." The confluence of these factors – a one-party SEC, challenges to agency independence, expanded executive immunity, and the influence of vast campaign contributions – creates what Seligman describes as an "extraordinary" situation.
He contends that this combination of weakening devices, coupled with a president’s "willingness…to seek personal wealth and contributions to his family and his family trust," distinguishes the current assault from any previous challenges to the SEC. Seligman asserts, "we have not seen, to my knowledge, a systematic effort to use the Presidency to enrich oneself while in office. This is what makes the war on the SEC different."
A Shift in Enforcement Priorities and Capacity
The interview also delved into the dramatic changes observed in the SEC’s enforcement landscape, a core function of the agency. Professor Seligman contrasts the current approach with the era of Stanley Sporkin, a legendary figure who headed SEC enforcement decades ago. Sporkin’s philosophy, "chop at the top," focused on pursuing major cases against the largest firms to create a powerful deterrent message across the industry.
Historical Context of Enforcement:
Stanley Sporkin, alongside Irv Pollack, is credited with establishing a "great SEC enforcement program" that set the standard for decades. Sporkin’s aggressive and strategic approach earned him a reputation as one of the most important figures in SEC enforcement history. His method emphasized quality over quantity, targeting high-profile violations to maximize deterrent effect.
Current Enforcement Landscape – A "Dismal Reversal":
Seligman characterizes the current enforcement environment as a "dismal, not complete, but large reversal" from this historical precedent. The most striking example comes from the cryptocurrency space. He notes that "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, since Paul Atkins arrived." This contrasts sharply with the SEC under the first Trump presidency (2017-2021) with Chairman Jay Clayton, which brought 57 cases against crypto firms. This represents a "night and day change," an "unprecedented" shift in regulatory posture.
Furthermore, the SEC under the current administration has actively supported legislation that would limit its own enforcement powers. The "GENIUS Act," for instance, effectively seeks to strip the SEC of authority over stablecoins, a significant component of the crypto industry. Similarly, the "Clarity Act," though not yet enacted, aims to further restrict the SEC’s ability to bring enforcement cases in the cryptocurrency sector. Adding to these legislative efforts, President Trump has pardoned crypto executives, sending a clear signal about the administration’s stance on enforcement in this area.
Seligman acknowledges that the SEC is still bringing some cases, but emphasizes that the major cases initiated during the prior administration have been largely shut down. He highlights the significant fraud, money laundering, and inadequate corporate leadership and internal controls prevalent in the crypto industry, yet enforcement appears to have receded. The perceived financial benefit to the President from this industry, documented by media reports, further fuels concerns about conflicts of interest influencing enforcement priorities.
Staffing and Leadership Challenges:
Compounding the shift in enforcement priorities is a significant reduction in the SEC’s capacity. Seligman cites public data indicating a "twenty percent" decrease in SEC staff over a two-year period. More critically, there has been a significant departure of "senior staff who have experience and who were most likely to be able to lead the most important cases." This loss of institutional knowledge and expertise severely cripples the agency’s ability to undertake complex investigations and litigation.
The abrupt resignation of Judge Margaret Ryan, appointed enforcement director, just weeks after giving a speech asserting that "enforcement work at the SEC has been tossed to the wayside are not only greatly exaggerated but flat out wrong," further illustrates the internal tensions. Reports suggested her resignation stemmed from resistance to pursuing cases against figures connected to the President’s circle, a concern Seligman echoed by noting the departure of most senior SEC attorneys in the crypto space.
The Broader Implications for Markets and Investors
The cumulative effect of these changes, as articulated by Professor Seligman and the Shadow SEC, extends far beyond the agency itself, impacting the broader financial markets and investor confidence. The move towards semi-annual reporting, for instance, has drawn considerable opposition. When the SEC proposed allowing semi-annual reports, 96% of the approximately 1,000 comments received opposed the change. Critics argue that reduced reporting frequency would make it harder for investors to understand their investments, destabilize prices, undermine confidence in management, and hinder investors’ ability to monitor compliance with securities laws.
While proponents like Chairman Paul Atkins argue that detailed rules, particularly under the previous administration, stifled innovation, drove firms abroad, and needlessly added costs, the Shadow SEC contends that the "benefits of full and complete reporting far outweigh those apparent costs." The weakening of enforcement, the reduction in staff, and the perceived politicization of the SEC could lead to a less transparent market, increased instances of fraud, and ultimately, a decline in investor trust. A regulatory environment perceived as compromised can deter investment, hinder capital formation, and diminish the overall integrity of U.S. financial markets.
Voices of Dissent and Public Engagement
Despite the challenges, pockets of resistance and advocacy persist. The Shadow SEC serves as a crucial independent voice, offering expert analysis and alternative policy prescriptions. Professor Seligman actively encourages public participation in the regulatory process, urging concerned citizens to submit comments on SEC rule proposals via the agency’s website. This direct engagement, as demonstrated by the overwhelming opposition to semi-annual reporting, shows that public input can be a powerful force.
However, the "revolving door" phenomenon presents a significant obstacle to organized resistance from within the legal and financial communities. Many former SEC staffers, who might otherwise be vocal critics, transition to lucrative positions at large corporate law firms that often represent entities benefiting from a weakened SEC. While not all private firms are defense-oriented, the practical realities of career advancement can effectively "gag" these experienced professionals, limiting their ability to speak out against perceived regulatory backsliding. Seligman acknowledges this reality, noting that appearing "hostile to what the client firms want" can make securing such employment harder.
Historical Precedents and Political Future
The question of whether corporate crime and corruption can become a significant political issue is central to the future of the SEC. Professor Seligman draws parallels to historical scandals like Teapot Dome, the vicuna coats affair, and the corporate collapses of Enron and WorldCom, all of which broke through the public consciousness and had political consequences. He distinguishes between "any corporate crime" and "major corporate crime" that captures public attention.
Seligman believes the current situation, characterized by the "sense that the Trump administration is exploiting its position for financial benefit," has the potential to become such a "major corporate crime" issue. The widespread perception of the President making "money being President" and focusing on projects that personally benefit him, while ordinary citizens grapple with rising prices and economic uncertainty, could resonate deeply with voters. He suggests that "a repulsion at what appears to be corruption in the Trump administration, its willingness to have accepted money and investment from individuals who simultaneously receive benefits, whether in the form of cases dismissed, pardons or other financial emoluments," could be a significant theme in the 2026 elections.
Ultimately, the future direction of the SEC and the effectiveness of its regulatory mission may hinge on political outcomes. A change in control of the House or Senate in the 2026 elections could have a substantial bearing on the agency’s trajectory. Until then, the concerns raised by the Shadow SEC and scholars like Professor Seligman highlight a critical juncture for U.S. securities regulation, where the independence of a vital institution is perceived to be under unprecedented assault, with potentially far-reaching consequences for market integrity and public trust.
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