The Trump administration is putting pressure on the DOJ and FBI to clean up their act following four years of political weaponization under the Biden administration, and rightly so, but another agency — the Securities and Exchange Commission (SEC) — also requires careful scrutiny. If he intends to get this agency back on track, new SEC chairman Paul Atkins has his work cut out for him.
Although many Americans are aware of stories about abuses of power by agencies such as the DOJ and FBI, they are probably unaware that the SEC has also been accused of misconduct and malfeasance for years, while accumulating a stunning level of bureaucratic power it can use to disrupt people’s lives.
The SEC has used in-house administrative law judges (ALJs) to reach decisions in cases that effectively stripped defendants of constitutional due process. Two Supreme Court decisions reined in the SEC’s ability to act as judge, jury, and executioner. It’s a good start – but only a start.
In SEC v. Cochran in 2023, defendant Michelle Cochran argued that SEC’s use of ALJs, who were protected from removal by the President, violated the Constitution's Appointments Clause and Removal Power. The Supreme Court ruled that federal district courts have jurisdiction to hear constitutional challenges to agencies like the SEC and FTC, even when the enforcement action is ongoing.
In 2024, in SEC v. Jarkesy, the Supreme Court ruled that those targeted by the SEC in enforcement actions — in which the SEC is seeking civil penalties against a defendant for securities fraud — have the right to a jury trial under the Seventh Amendment.
The SEC has also displayed a lack of transparency when it comes to what some view as arbitrary decision making, especially when it comes to cryptocurrency regulation. The SEC’s regulatory inconsistencies regarding crypto were highlighted in SEC v. Ripple Labs, which recently ended in the SEC settling with Ripple in an effective victory for the crypto company.
At times the SEC’s arbitrary enforcement appears to be politically motivated. The merger of Trump Media & Technology Group with Digital World Acquisition Corp. (DWAC), first announced in October 2021, became stuck in years of regulatory limbo waiting for the Biden SEC’s approval. The merger was finally allowed to proceed in March of this year.
But while the SEC’s practices have begun to face welcome scrutiny, we are only beginning to understand its shady behavior in building its cases against its targets.
Last year in Utah, U.S. District Court Judge Robert Shelby sanctioned the SEC and accused it of "gross abuse of the power entrusted to it by Congress" in a dispute with the blockchain firm DEBT Box. Judge Shelby said that the SEC acted in “bad faith” and “deliberately perpetuate[d] falsehoods” while seeking to obtain a temporary restraining order and an asset freeze against the company. He also ordered the SEC to pay $1.8 million in attorney and receivership fees.
In a current case in New York, SEC v. Richard Xia, et al, the SEC is facing several disturbing allegations of misconduct from the defense, including the suppression of exculpatory material. Recently, the court removed SEC general attorney Judith Weinstock from the case “for good cause shown.”
The case revolves around two building projects in Queens, New York, helmed by developer and architect Richard Xia, a Chinese-born American citizen. Financed through the EB-5 program, in which foreigners can obtain green cards after successfully financing building projects in the United States, the developments were poised to create thousands of local jobs and give hundreds of investors their shot at the American Dream.
Xia’s allegations against the SEC in his case have uncomfortable echoes of Judge Shelby’s ruling in the DEBT Box case. If the Trump administration is serious about restoring the American people’s trust in government, it will have to go further than just cleaning up the FBI and DOJ. The American people deserve to know how many similar cases involving the SEC have occurred — or are still occurring.
Chairman Atkins and the Trump administration must conduct a thorough investigation of recent and pending cases in which legitimate questions have been raised about the SEC’s motives, actions, and overall conduct. As President Trump has promised to defang the administrative state, one must ask, Quis custodiet ipsos custodes? Who will watch the watchers?
