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Oh, we'd like to think the permanent SEC staff will be able to resist any increasing politicization of the regulator. But after reading "2025" and knowing the academic research, and have (too much) experience with law and politics in the U.S., yes, it would be nice to be comfortable with myth - and not face reality.
There are no shortage of takes on what might happen in the SEC in the next administration. But given how quickly we are are hearing about other major proposed appointments, it may not be long before Gary Gensler quits or is fired and we finally know who MAGA wants for SEC Chair - Brian Brooks, the former CEO of Binance US, the largest cryptocurrency exchange in the world.
SEC managers are telling staff "we are an institution, and the center will hold, the rule of law will prevail". And "yes, there will always be bad guys". Which, frankly, I would not find all that comforting.
But the problem is the Trump transition team has said there will be "more political appointments" across the board, especially at the DOJ and the SEC — and so they are abandoning the normal OPM guidelines and going down several levels to make deputy directors, as well as Directors and Commissioners, all politically inflected appointments. That means that the White House, and not the rule of law, will drive SEC activity, especially in matters of enforcement, who favors "less" regulation, or a "balanced" regulation.
There is a very well-known paper ("Conscience Leave") by Professor Andrew Jennings, published in 2021 in the Notre Dame Journal of Law, Ethics and Public Policy, wherein Jennings is not so sanguine about lawyers standing up for their principles. It is not a long piece (22 pages) but herein a few brief points.
In the federal government, political officials come and go while civil servants remain. In the ordinary course, the political officials make decisions about what policies the government will pursue while civil servants use their labor and expertise to carry those policies out––even when they disagree with them.
But what happens when political officials pursue policies that civil servants view as deviating from normal bounds - policies that are unethical, immoral, or unlawful?
The Article examines when and how civil servants might object to such policies, including going so far as to leave government service. It concludes that when faced with such situations, employees’ personal benefit-cost analyses will generally lead them to not object to deviating policies.
Of the costs federal employees must consider, the dominant one is usually economic: they need a job and cannot afford to leave one without having another lined up. Although existing civil-service rules partly reduce this cost - such as through giving anti-retaliation protections to whistleblowers - those protections are often insufficient to motivate objection.
The example Jennings uses to illustrate his point is the child-separation policy of the first Trump administration.
The child-separation policy was the choice of political leaders, but it was the work of career employees. Assistant U.S. attorneys in border districts used their professional skills to implement a zero-tolerance prosecution program that would necessarily require that children be separated from their parents and placed into CBP custody. The attorney general expected them to do so “until all available resources” - in other words, their labor and expertise - “were exhausted.”
CBP personnel custodied the children in deplorable conditions. And DOJ attorneys defended it. Oral argument in the government’s appeal from a district court order that CBP provide hygiene items to the children gained national attention in part because it personified the work of civil servants in carrying out such deviating policy.
Professor Jennings also cites Professor Kathleen Clark, a Professor of Law at Washington University, who in her study of 142 protest resignations during the Trump administration, found that only 21 were by civil servants. The rest were by political appointees, and many were part-time officials serving on advisory boards. The article notes:
“Of those who publicly resigned in protest, 85% were individuals who already had other full-time means (that is, they merely served part-time on advisory committees) or were full-time political appointees and, thus, likely had personal connections and prestige that would allow them to quickly find new employment. Of course, during that time many civil servants might also have resigned in non-public protest, but it is telling that in this sample, those who relied most on their positions—civil servants—were least likely to resign despite vastly outnumbering those holding political appointments.”
Speak to anyone who knows how the SEC runs and they will tell you this:
- The choice of SEC Chair will be directionally critical. SEC staff will take their cues from the Chair but still expect to operate independently. However, when they disagree strongly with leadership, SEC staff can opt out more quickly and easily than most other federal agency staff. SEC attorneys are well-positioned to move to private practice or industry positions, often at much higher compensation the civil service offers. It is the same playbook at the DOJ.
- And if the SEC systematically declines to take certain kinds of cases or cases against certain entities, that opens it up for state regulators and private plaintiffs to go after those cases. Often state regulators defer to the SEC and DOJ, but they might not if there's an enforcement lag at the federal level. So, there are alternate career paths for SEC professionals and alternate enforcement options for other enforcers.
One place SEC attorneys rarely go, but could now consider if they feel strongly about cases the SEC and DOJ aren’t taking, is the plaintiffs bar.
And we all know the Wall Street talk post-election: M&A is going to be back in a big way, and slide right through. SEC attorneys are also well-positioned to do that work in private practice. Win win!!
And for sure we'll see an uptick in firms regularly using political spending as a strategic tool to avoid SEC enforcement. No one can deny that there have been record amounts of political spending this Presidential election cycle.
A number of polls showed the political views of America’s corporate elite had shifted significantly to the left in the past two decades, and that this change in managerial class values has driven the recent wave of corporate social activism.
But this month's ballot box showed a different direction.
And Reilly Steel, an Academic Fellow and Lecturer in Law at Columbia Law School, has a new paper coming out using data on millions of political donations made by tens of thousands of executives, board members and senior managers since 2001. He finds that the median U.S. CEO is no longer solidly on the left. Instead, he or she is now a political "moderate", while senior managers today are overwhelmingly right-leaning.
I'll leave the last word to our boss, Gregory Bufithis, who I chatted with as I was writing this.
Look, this wasn't an election. This was a revolution - a sanctioned coup. Just an extension of January 6, 2021 but at the highest level, and now with a stamp of voters' approval.
What this *election* really demonstrates is how American tolerance for the unacceptable is nearly infinite. There are hundreds of absolutely mind-boggling things I could point to from the past decade but why bother?
Trump was made a viable presidential candidate - for all sorts of reasons - and now the U.S. has few (if any) guardrails to protect itself from the clear and present dangers he and his political appointees will continue to confer upon Americans. Oh, hell, on all of us.
Yes, many would like to believe that many of the ideas on Trump’s demented wish list won’t actually come to fruition and that America's *democracy* can once more withstand the new president and the people with whom he surrounds himself.
But that is just desperate, wishful thinking. Kamala Harris' campaign slogan was right: "We aren't going back". But she was right - ironically for the wrong reason. Right now, today, there is nothing that will break the iron grip Trump has on his base, and Vice President-elect JD Vance is young enough to carry the mantle going forward for political cycles to come. As I have noted before, the Democrats’ loss to Trump has reduced Biden’s time in office to a mere intermission within a larger, angrier Trumpist age that has been building for years.
Yes, yes. I know. Absolutely anything is possible. And people acknowledge that not out of surrender - but as a cosmic means of readying themselves for the impossible fights ahead.
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