Takeaways

• Chair of the U.S. Securities and Exchange Commission (SEC) Gary Gensler recently testified before Congress to request approval for an additional 170 staff positions, citing increased demand for agency enforcement over, among other things, a growing crypto market “rife with noncompliance.”
• Gensler’s testimony provided further context regarding his agency’s 2024 Budget Justification Annual Performance Plan, which requested approximately $2.4 billion for use by the SEC to expand its operations and increase its regulatory oversight and enforcement activity.

Overview

On March 29, Gensler testified before the U.S. House Appropriations Committee’s Financial Services and General Government Subcommittee during a hearing on the SEC’s Fiscal Year 2024 Budget Justification Annual Performance Plan. During his testimony, Gensler remarked on technology’s role in the “tremendous growth and change” of the nation’s capital markets, which has resulted in an increased demand for SEC oversight.[1]

Budget Justification

Gensler justified the agency’s budget and staff request by emphasizing the SEC’s role as “the cop on the beat” that “must be able to meet the match of bad actors.”[2] To fill this role, Gensler asserted that the SEC is required to “grow along with the expansion and increased complexity in the capital markets” to fulfill its law enforcement mission. This increased jurisdictional expansion includes the crypto markets, according to Gensler, who described this market segment as being “rife with noncompliance” and a place “where investors have put hard-earned assets at risk in a highly speculative asset class.”[3]

Increased Staffing Request

The SEC’s fiscal year 2024 budget request seeks funding to support a total of 5,139 full-time equivalent (FTE) positions, which would include an additional 170 positions and continued support for the 400 positions added in 2023.[4] The SEC’s request, if approved, would disperse these full-time employees across the following divisions:

• Enforcement;
• Examinations;
• Corporation Finance;
• Trading and Markets;
• Investment Management; and
• Economic and Risk Analysis.

Nearly half of the staff requested would be added to the agency’s Divisions of Enforcement and Examinations. Gensler justified increased hiring in the Enforcement Division by citing the agency’s receipt of “more than 35,000 separate tips, complaints, and referrals from whistleblowers and others in FY 2022” – reportedly double the number received by the agency in 2016. Meanwhile, according to Gensler, the Enforcement Division shrank by 5 percent during this same time period.

As we reported last year, the SEC expanded its Crypto Assets and Cyber Unit (the Unit f/k/a the Cyber Unit) to 50 staff members, nearly double the Unit’s former size.  In addition, the SEC requested for 2023 an additional 125 staff members to join its Division of Enforcement, 33 of whom were requested for the Unit, 34 for litigation, and 44 to help address misconduct and “accelerate enforcement actions,” and emphasized crypto.  It’s noteworthy that 2022 and 2023 budget requests are significant departures from 2022, when the SEC requested only nine new positions in the enforcement division and only briefly mentioned digital assets.

Conclusion

As was the case in 2022 the SEC continues to signal a focus on crypto-related regulatory and enforcement initiatives. As such, we can expect existing cases to be vigorously litigated and new investigations and enforcement actions to be initiated swiftly and aggressively. The BakerHostetler White Collar, Investigations, and Securities Enforcement and Litigation team and Blockchain Technologies and Digital Currencies team are composed of dozens of experienced individuals, including attorneys who have served in the Department of Justice and at the SEC. Our attorneys include a former U.S. attorney, former assistant U.S. attorneys, branch and unit chiefs; as well as partners who have served in the SEC’s Division of Enforcement and the SEC’s Office of the General Counsel, and attorneys with extensive experience in regulatory investigations, litigation and enterprise compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.

By George Stamboulidis, Carole S. Rendon, John Carney, Jonathan Barr, Teresa Goody Guillen, Jimmy Fokas and Veronica Reynolds