Amara Maple
Two years ago, a distinguished group of five 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 "The Shadow SEC." This initiative, modeled after the long-standing Federal Reserve Shadow Open Market Committee, was conceived to foster, facilitate, and disseminate critical discussions and debates concerning federal securities laws and the operational integrity of the Securities and Exchange Commission (SEC). The collective’s emergence underscores growing anxieties within academic and legal circles regarding the direction and effectiveness of the nation’s primary securities regulator.
The Genesis and Mission of The Shadow SEC
Founded on a principle of informed oversight, The Shadow SEC aims to serve as an independent voice, offering policy analyses and critiques that parallel, and at times challenge, the actions and policies of the official SEC. Its mission statement emphasizes providing "policy discussions and debates relating to the federal securities laws and the Securities and Exchange Commission (SEC)." Since its inception, the group has issued eight public statements, addressing a range of pressing issues from the fundamental value of an independent SEC to specific legislative proposals and enforcement practices. These statements, published on platforms such as Columbia Law School’s Blue Sky Blog, also serve as formal comments on SEC rule proposals, signaling a concerted effort to influence policy from an expert perspective.
The statements released by The Shadow SEC thus far include:
- "The Value of an Independent SEC" (February 24, 2025)
- "The Crisis Deepens as SEC Staff and Budget Cuts Are Directed" (March 13, 2025)
- "FCPA Books and Records Requirements Must Be Vigorously Enforced" (May 12, 2025)
- "The PCAOB Should be Carefully Reviewed, Not Hastily Abolished" (May 14, 2025)
- "The PCAOB Should be Preserved" (July 3, 2025)
- "The Not-So-GENIUS Act" (July 14, 2025)
- "Too Much, Too Fast" (September 30, 2025)
- "Comment on SEC Proposal to Allow Semiannual Reports" (June 1, 2026)
These publications highlight the group’s focus on maintaining robust regulatory standards, ensuring adequate resources for the SEC, and preserving the integrity of oversight bodies like the Public Company Accounting Oversight Board (PCAOB). Their recent comment on the proposal for semi-annual reporting, for instance, reflects a broader concern among experts and the public about potential reductions in transparency for investors.
A Period of Unprecedented Challenges for the SEC
Professor Joel Seligman, a distinguished legal scholar and one of the founders of The Shadow SEC, recently articulated in an interview with Corporate Crime Reporter the unique nature of the current pressures facing the SEC. Seligman, author of over twenty books including the seminal work The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance, highlighted several critical factors distinguishing the present challenges from previous attacks on the agency.
The One-Party Commission
A primary concern is the current composition of the SEC, which, since January 2026, has operated as a "one-party commission." With three Republican-appointed commissioners led by Chairman Paul Atkins and no Democratic members, the agency deviates strikingly from its statutory model, which mandates a five-person commission with no more than three members affiliated with any single political party. This imbalance, Seligman argues, grants the current commissioners "unusual latitude to pursue new ideas" and shields them from the "robust internal debate" that minority commissioners typically provide. While the law does not explicitly compel the appointment of five commissioners at all times, it outlines a structure designed for bipartisan deliberation. The current quorum rule, which allows for decisions based on "whatever number are in office," further exacerbates this issue, leading Seligman to advocate for statutory amendments to ensure bipartisan representation and to overrule the agency’s internal quorum provisions.
Assault on Agency Independence
Beyond its composition, the SEC faces a broader "ferocious attack on the concept of independent commissioners." This challenge is amplified by two cases currently before the Supreme Court, which are examining whether provisions allowing for the removal of commissioners only "with cause" are constitutional. Should the Court rule that commissioners, particularly those at agencies like the SEC, can be removed "at will," it would fundamentally undermine the agency’s capacity to function as an expert, bipartisan body dedicated to complex financial and securities regulation. The outcome of these cases, while still pending, holds significant implications for the autonomy of regulatory bodies across the federal landscape, including the Federal Reserve.
Seligman clarified that "independence" does not imply omnipotence; the SEC remains subject to presidential appointments, congressional budget approvals, and statutory limitations. However, the current environment, characterized by a one-party agency and an ongoing legal assault on "at-will appointments," poses a serious threat to its historical mandate.
The Unitary Executive Theory and Project 2025
This systematic weakening of independent agencies, Seligman explained, stems from the "unitary executive" theory, a legal interpretation asserting that the President possesses ultimate control over the executive branch, including independent agencies. This theory formed the ideological basis for initiatives such as the Heritage Foundation’s Project 2025, which seeks to dramatically expand presidential power over the federal bureaucracy. Seligman contended that this interpretation "misunderstand[s] our constitutional model which is based on checks and balances." He contrasted this modern interpretation with Alexander Hamilton’s original concept of an "energetic executive" in the Federalist Papers, which, in its 18th-century context, aimed to ensure governmental effectiveness in a nascent nation struggling with post-revolutionary disunity, rather than to centralize unchecked power.
Judicial Rulings and Campaign Finance
Two additional factors contribute to the current assault on the SEC’s integrity: recent Supreme Court decisions concerning presidential immunity and the implications of the Citizens United ruling. The Court’s immunity decision, by limiting the ability to subpoena or litigate against a sitting President, has, according to Seligman, "strengthened the power of a President not to adopt ethics rules, not to doubt that he has great power to proceed largely without restraint." Concurrently, the Citizens United decision, by enabling unlimited independent political expenditures, has amplified the influence of wealthy donors, creating "opportunities to those with great wealth to try and influence the President by providing tremendous contributions to the President’s political campaigns."
The convergence of these factors – a one-party commission, challenges to agency independence, the unitary executive theory, expanded presidential immunity, and the impact of Citizens United – creates an environment where the SEC’s regulatory capacity and impartiality are severely compromised.
The Dire State of Enforcement
A particularly alarming aspect of the current situation, as highlighted by Seligman and reflected in the historical perspective offered by a former SEC enforcement division staffer, is the significant decline in enforcement activity. The era of Stanley Sporkin and Irv Pollack, celebrated for their aggressive "chop at the top" enforcement strategy against major firms, appears to be a distant memory.
Cryptocurrency Enforcement Rollbacks
The most dramatic shift has occurred in the cryptocurrency sector. Seligman revealed 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 stands in stark contrast to the first Trump administration (2017-2021) under Chairman Jay Clayton, which brought 57 cases against crypto firms. The current administration’s approach includes supporting legislation like the "GENIUS Act," which seeks to limit the SEC’s power over stablecoins, and the "Clarity Act," aimed at further restricting enforcement in the crypto space. President Trump’s pardons of crypto executives further signal a dramatic shift in policy and priorities.
This rollback comes despite widespread documentation of "major fraud," "money laundering," and "inadequate corporate leadership" within the crypto industry. Concerns are also heightened by reports from the New York Times and other outlets detailing significant financial profits made by President Trump from this industry, raising questions about potential conflicts of interest and the use of the presidency for personal enrichment.
Staff Reductions and Senior Departures
The efficacy of enforcement is further hampered by a significant reduction in SEC staff. Public data indicates a 20% decrease in overall staff over a two-year period. More critically, there has been a substantial 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 is deeply concerning for the agency’s ability to pursue complex investigations and litigation effectively. While regional offices have seen some reductions, the loss of senior personnel in critical areas like cryptocurrency enforcement is particularly impactful.
The abrupt resignation of Judge Margaret Ryan, who served as enforcement director for only a few weeks after publicly asserting the quality and impact of enforcement actions over mere numbers, also raised questions. Reports suggested her departure was due to resistance encountered when pursuing cases involving individuals within "Trump’s circle," though Seligman did not have specific details on that particular instance, he noted the broader pattern of senior SEC attorneys departing the crypto space.
Calls for Accountability and the Political Landscape
Despite these profound challenges, organized resistance appears limited. While academics like The Shadow SEC founders and some former SEC alumni express outrage, the "revolving door" phenomenon – where former SEC staffers transition to lucrative positions in corporate law firms that benefit from a weakened SEC – can effectively "gag" potential critics. Seligman acknowledged this reality, noting that appearing hostile to client interests can make securing such private sector employment more difficult, although he pointed out that some litigation firms might welcome such criticism.
Seligman believes, however, that the current situation, particularly the perception of presidential corruption and the systematic efforts to weaken oversight, could break through into the political consciousness. He drew parallels to historical scandals like Teapot Dome, vicuña coats, Enron, and WorldCom, arguing that "major corporate crime" and the "sense that the Trump administration is exploiting its position for financial benefit" are widespread enough to resonate with the public. With rising gas and food prices and other economic anxieties, the perception of a President prioritizing personal wealth over public service could become a significant theme in the upcoming 2026 elections.
The future direction of the SEC, Seligman concluded, hinges significantly on the 2026 elections. A shift in control of the House or Senate could alter the agency’s trajectory. Until then, the combination of a weakening, less independent SEC and allegations of unprecedented financial benefits reaped by the President and his administration presents a critical juncture for regulatory integrity and public trust in American financial markets. The stakes, according to legal experts, extend beyond mere policy debates to the foundational principles of government ethics and checks and balances.
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