https://www.cfobrew.com/stories/2026/02/05/amid-the-sec-s-slowdown-in-enforcement-actions-cfos-need-to-play-the-long-game-experts-caution

By Natasha Piñon

Amid the SEC’s slowdown in enforcement actions, CFOs need to tread carefully.
There’s a new sheriff at the securities regulator—but that doesn’t mean it’s the Wild West for CFOs.

“Tread carefully,” Lisa Bragança told us, addressing CFOs. “Don’t jump to conclude that just because something has changed at the SEC level, that it means you should move to that disclosure regime. You may still have obligations under state [rules] and other organizations.”

“This is a time that CFOs definitely need to be careful…to make sure that they don’t just go ‘Whee!’” she added. “It’s a more complicated time, because we will have these different views of what needs to be done, disclosed, and what a fiduciary is required to do.”

State of mind. In the years to come, Bragança thinks it’s possible that while federal regulation ebbs, state-by-state regulation will increasingly come into focus, with states stepping in to take a potentially more rigorous approach.

“Typically, state regulators defer to what the Feds are doing,” she said. “It’s not clear that that’s going to be the paradigm this coming year or in the coming years.”

“You cannot just look at what is going on at the very top, at the federal level,” Bragança said. Even in the most extreme what-if cases—like, say, the president saying fraud cases are fully a thing of the past—“that would not change the states, and it would not change the requirements that apply to CFOs as accountants,” Bragança noted.

“Maybe in a decade, the states will follow, and all the other organizations will be in perfect sync with a new regulatory regime from the federal government,” she acknowledged. “But usually these things happen more slowly, and there is more time for consensus and then you don’t have those discontinuities.”

Updated January 9, 2026

When a prospective client call us, they often tell us they don’t understand why they are being investigated because no customer complained and nobody lost any money. They believe once they show the SEC or FINRA or a state securities regulator that there is was no harm to any customer, the investigation will end with no action. Unfortunately, this is NOT TRUE.

This Violation Has No Victim; This Violation Needs No Victim

We typically understand a “victimless crime” is an act that breaks the law but does not directly harm another person – things like illegal gambling and speeding in a deserted area. In the highly complex and regulated business of finance, the line between a technical legal violation and a crime with a clear victim simply does not matter. Many government enforcement and criminal actions, from insider trading to market manipulation, are built on a theory that does not require any identifiable victim. For individuals and companies facing an investigation of such an offense, understanding this “myth of the victimless crime” is the first step in reckoning with the possible consequences of a government investigation.

Technically…That’s a Securities Law Violation

While the current Trump administration changing a lot, the SEC has continued to investigate and bring cases seeking to impose substantial civil penalties on financial services companies for what most would consider entirely technical violations of the securities laws. For example, there are the recent “off-channel” electronic communication settlements, where firms failed to ensure communications financial advisors had with clients on WhatsApp were retained in the firm’s books and records. In addition, the current administration has targeted financial firms for:

• Violations of “the custody rule” (SEC’s Rule 206(4)-2), a requirement that registered investment advisors (“RIAs”) arrange and submit to “surprise” annual examinations of their account recordkeeping (the firms violating the rule by failing to identify themselves to the SEC);
• Running afoul of Rule 105 of Regulation M which regulates certain short selling activities; and
• Failing to keep proper records for backdating certain documents subject to an SEC review.

In none of these cases was any investor harm alleged and all imposed substantial penalties and/or injunctive relief.

Where’s the Fraud?

There are many federal securities laws and regulations (as well as FINRA rules) completely unrelated to customer harm that can lead to fraud charges. Here are some examples:

• Insider Trading: Consider a classic insider trading case. An executive uses non-public information to sell shares of company stock. The person who bought those shares on the open market was already there, willing to buy at that price from any seller. They were not coerced or directly deceived by the executive. Had the executive not sold, they would have simply bought from someone else. While the executive had an informational advantage, it is difficult to argue that the counterparty to the trade was a “victim” in the conventional sense. Nor is that required.  

It is important to recall that in an insider trading case, the harm is to the owner of the information that was misused. Nevertheless, the government makes no effort to use the funds “disgorged” or recovered from the violator to compensate the owner of the information or the counterparty to the trade.

• Market Manipulation: Certain forms of alleged market manipulation, such as “spoofing” or “wash trading,” are prosecuted because they create a false appearance of market activity that moves markets. While the government argues this deceives the entire market, the government does not have to identify a specific trader who was concretely harmed. Even if there are identifiable victims (like market makers), the funds “disgorged” to the government are not paid to the victims.

• Acting as an Unregistered Broker – Federal and state securities law require that securities be sold only by registered brokers. Often salespeople discover after the fact that they are under investigation for selling an investment they were reasonably led to believe was not a security or fell within an exemption from registration as a security. That was the basis for many charges brought against cryptocurrency platforms that sold digital tokens the SEC and state regulators concluded met the definition of “securities.” While the current administration has backed off of cryptocurrency enforcement actions, there are many other types of investments that securities regulators have concluded were securities therefore required to be sold only by registered brokerage firm agents.  

The “Market” is the Victim Even if Nobody in the Market is Hurt

The SEC and other federal and state authorities argue in these types of cases that the victim is not necessarily a single person but the integrity of the U.S. financial markets as a whole. The SEC’s view is that such conduct leads to an erosion of trust by harming public confidence in the stock market. If investors believe the market is a “rigged game” where insiders and manipulators have an unfair advantage, they will be less likely to invest. This can theoretically damage capital formation and the health of the economy. In fact, even during the recently concluded government shutdown when over 90% of SEC staff was on furlough, none of the new cases filed by the remaining “skeleton staff” sought the type of emergency relief such as temporary restraining orders or asset freezes that would indicate the SEC was concerned about about redressing individual investor harm.

Of course, it is hard to square the SEC’s supposed concern about “market integrity” at the same time the SEC is overhauling its regulations to allow or encourage even the most unsophisticated investors to purchase private equity – an asset class subject to virtually no disclosure requirements.

Even in the criminal context, the Supreme Court affirmed the principle that no monetary loss need even be alleged for someone to be found guilty of fraud. In Kousisis, et al. v. United States, 145 S. Ct. 1382 (May 22, 2025), the Supreme Court unanimously upheld the conviction of a contractor and one of its managers for getting a contract with the Pennsylvania Department of Transportation (PennDOT) based on the false promise that it would obtain materials from a “disadvantaged business enterprise.” Although there was no allegation that the work was not performed in compliance with the contract, the contractor was found guilty of fraud. The Supreme Court upheld the conviction, concluding the defendants could be convicted for fraudulent inducement even if prosecutors did not allege that PennDOT lost any money as a result of the defendants’ lies. Obtaining money through lies was sufficient to support the conviction.

How bad can it be?

• Disgorgement of Fees and Commissions: Even in scenarios where no investor suffered a direct financial loss, an individual or entity might be charged with improperly obtaining payments when the law was violated. The SEC has the authority to seek “disgorgement” of these payments (called “ill-gotten gains”), which is an equitable remedy designed to prevent wrongdoers from profiting from their illegal conduct. This means that any benefit derived from the violation – profits, avoided losses, fees, or commissions – can be sought by regulators as disgorgement. For example, a corporate executive who sells shares based on material non-public information, thereby avoiding a significant personal loss before negative company news is publicly announced, would typically be considered by regulators to have obtained an “ill-gotten gain” in the form of the avoided loss. This is true even if other investors didn’t lose money because of that specific trade.
• While there is some dispute among the courts as to whether disgorgement is allowed when there is no showing that investors suffered a pecuniary loss, the majority position is that disgorgement is allowed in such situations. The U.S. Supreme Court agreed to hear the appeal of the Ninth Circuit’s opinion affirming a disgorgement judgment where no pecuniary loss was established. See Ongkaruck Sripetch v. SEC, No. 25-466 (Oct. 14, 2025). Importantly, the SEC had taken the fairly unusual step of agreeing with the petitioner that the Supreme Court should hear the case, but only because it wants the Supreme Court to resolve the circuit split and affirm that pecuniary loss is not necessary for the SEC to obtain disgorgement in such circumstances.

• Imposition of Civil Penalties: Beyond disgorgement, the SEC can impose significant civil monetary penalties for violations of securities laws. These penalties are distinct from disgorgement and serve as a direct punishment for the misconduct.

As the Supreme Court affirmed in SEC v. Jarkesy, 601 U.S. 109 (2024), when the SEC seeks civil penalties for securities fraud, these penalties are punitive in nature, designed to punish or deter the wrongdoer rather than solely to restore the status quo. This distinction underscores that the SEC’s ability to seek civil penalties is not contingent on demonstrable investor loss or the ability to provide restitution to specific individuals.

• Industry Bars: Furthermore, the SEC possesses the critical power to issue industry bars, prohibiting individuals from serving as officers or directors of public companies, or from participating in various capacities within the securities industry (e.g., as a broker-dealer, investment adviser, or accountant). These bars are supposed to remove individuals who have violated the securities laws from positions where they could commit further violations, to protect the public and the markets, independent of whether specific victims are present in a given case.

• Obey the law injunctions/orders:  The SEC and state regulators routinely seek injunctions or administrative orders requiring a defendant to obey the securities laws. That might seem innocuous, but it has serious collateral consequences. First, being subject to an injunction may mean you are considered a “bad actor” who cannot be part of management of a firm that is selling securities or that has investors. Second, an injunction or administrative order may have to be disclosed in various contexts, like on personal loan applications, in applications for government licenses, or when seeking to raise money for a business venture. These injunctions and administrative orders do not terminate on their own so the risk of inadvertently violating them years down the road is significant.It should be noted, however, that while it is still not the majority approach, courts are increasingly rejecting orders which simply require defendants to “obey the law” for failing to specify the particular conduct being enjoined.

What Should You Do?

If you sell anything that you conceivably think could be considered an investment product, if you are working in the finance industry, or if you are involved in raising money for a business venture, you should seek advice to ensure you are complying with the law. If you receive a subpoena from the SEC or other securities agency, you should not respond on your own – even if you are not aware of any harm to anyone. The lack of harm is not going to lead the regulator to go away. You need to immediately retain a lawyer who can assist you with responding to the subpoena or information request to help you get the best possible result while taking steps to protect you from having something administrative or civil escalate into a criminal prosecution.

Under Investigation? Why You Must NOT Talk to the SEC or Government Agents Without a Lawyer

If you or your company receive a subpoena or get a call or visit from the Securities & Exchange Commission (SEC), FBI, or another governmental authority, it’s not likely because they want to help you. Even if you are convinced of your innocence, you need to be very careful in how you respond.

First and foremost: Do not speak to anybody from the government until you’ve first contacted an experienced lawyer.

The Danger of Unprotected Statements

Many potential clients are shocked when the SEC moves forward with an investigation or brings charges after the clients believed they could convince the SEC of their innocence. As the late criminal attorney James Neal famously noted in an episode of the PBS series, Ethics in America, “There are very few deaf and dumb people in the penitentiary.” Indeed, cooperation with the government might be a good strategy, but only if you get the help of an experienced defense attorney.

Your Best Friend: The Fifth Amendment Privilege

The Fifth Amendment to the U.S. Constitution provides that no person “shall be compelled in any criminal case to be a witness against himself.”

• Broad Application: The Fifth Amendment Privilege applies to any government investigation or proceeding where your testimony could potentially expose you to criminal liability like SEC investigations, DOJ inquiries, and federal and state regulatory examinations. It doesn’t matter if your statements are being sought in a routine examination by a civil authority. Your statements can be given to criminal prosecutors who can bring charges against you.
• No Formal Charges Needed: You do not need to be formally charged with a crime to invoke the Fifth Amendment Privilege. The privilege applies whenever there is a reasonable possibility that your statements could be used against you in a future criminal prosecution. You need an attorney to advise you about what kind of criminal charges you could possibly face.
• Securities Cases: Securities investigations almost always raise the possibility of criminal charges. That is because the definition of securities fraud is extremely flexible and broad and the conduct can constitute not just civil securities fraud but also federal criminal securities fraud or wire fraud.

Why Securities Cases Demand Particular Caution

Investigations by the SEC and state securities regulators present significant dangers that make Fifth Amendment Privilege especially important:

• Parallel Proceedings: Securities matters routinely involve simultaneous civil (SEC) and criminal (FBI/DOJ or state) investigations. The SEC discloses in tiny print on its forms and often orally that statements you make and documents you provide to the SEC can be provided to criminal prosecutors. The SEC often seeks to convince criminal prosecutors at the Department of Justice to bring criminal fraud charges based on the evidence they have obtained. Sometimes the SEC is investigating at the same time the DOJ has convened a grand jury to investigate. As a result, without the representation of an experienced attorney, there is no safe way to provide information without risking it being used against you by criminal prosecutors.
• Complex Regulatory Framework: Securities laws are intricate, technical, and often counterintuitive. What seems like an innocent explanation to a layperson may constitute an admission of a material element of a securities violation. People often come to us after having basically admitted to securities fraud. To avoid that, contact an attorney at the beginning of the investigation.
• The Perjury Trap: Once you begin answering questions (whether under oath or not), you create a record. Inconsistent answers create the potential of being charged with perjury (18 USC §§ 1621 and 1623) or a violation of the “false statement” federal statute (18 USC § 1001). These “process crimes” can be easier to prove than the underlying securities violation and carry severe penalties. Remember, Martha Stewart did not go to prison for insider trading, but because she was convicted of making false statements to federal agents in an interview. See also US v. Cohen, No. 25-1746 (7th Cir. Nov. 24, 2025) (sentence of 21 months affirmed for individual who made false statement to U.S. Marshals Service regarding residence of a convicted sex offender).
• No “Talking Your Way Out”: Clients, particularly successful business people, routinely overestimate their skills of persuasion. They are convinced that if they explain their conduct, the government will just drop the case. In reality, investigators frequently have reached a preliminary conclusion about the conduct of the person they contact before they make contact. That means they are not looking for information that will help you, they are looking for information that confirms what they already think. You need a lawyer to help you get them to hear evidence that shows you did not violate the law.

Practical Guidance: Dos and Don’ts

If and when you are contacted by the SEC, DOJ, FBI, or any other government agency, follow these steps without deviation:

Addressing Common Concerns

Your Fifth Amendment Privilege is a fundamental constitutional safeguard. Asserting this right is not an admission of wrongdoing; it is a prudent exercise of the protections our legal system affords. You can invoke the Fifth Amendment Privilege and – with the help of an experienced attorney – still provide information to the government that leads to no civil or criminal charges.

The core rule is: Do not speak to anybody from the government until you’ve first contacted an experienced lawyer.

If you are contacted by any government agent or investigator, please contact us immediately. We will navigate this matter together, strategically and with your rights fully protected.

Photo by Chris Linnett on Unsplash

Just before Christmas, the SEC filed insider trading charges against Jason Peltz for trading on nonpublic information he obtained before the March 15, 2016 announcement that a private equity firm had made an offer to acquire Ferro Corp. The SEC alleges that Peltz traded and tipped others who traded on this material nonpublic information. On the same day, the U.S. Attorney’s Office filed criminal charges against Mr. Peltz. 

The charges in the Jason Peltz case are classic insider trading so it is worthwhile to review insider trading law, which is judge-made and sometimes confusing, as well as the evidentiary trail that led the SEC to bringing these charges. 

What is Insider Trading? 

Liability for insider trading is generally based upon Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5, which prohibits the employment of manipulative and deceptive devices in connection with the purchase or sale of a security. While a few additional rules have been added concerning insider trading, insider trading law is primarily defined by judicial decisions. 

Insider trading is a general term that refers to purchases or sales of securities based upon confidential nonpublic information that is material. In some cases, such as alleged by the SEC with respect to Mr. Peltz, a trader may obtain the material nonpublic information from company a company insider. Two things are critical to every insider trading case: (1) the information upon which the trades are based must be confidential (nonpublic); and (2) the information must be material. 

How Do You Know if You Can Trade on Certain Information? 

Not all trading based upon nonpublic or confidential information is illegal. As many economists and commenters have noted, efficient securities markets must have incentives for individuals and firms to invest resources in investigating securities. Developing expertise in certain companies or industries may require a significant investment in time. If parties who invest in developing that expertise were unable to benefit from their investment, markets might operate less efficiently. Whether particular insider trading is illegal is determined on a case-by-case basis. 

Confidential or Nonpublic Information

In order to prevail on charges of insider trading, the SEC must prove that the information upon which the defendant traded was nonpublic and material. The determination of whether information is nonpublic is made on a case-by-case basis. In general, this is not a difficult factor to consider. Companies generally have procedures in place to identify particularly confidential information and to remind those who have access to this information that they have a duty to keep it confidential. 

In the case of Jason Peltz, the SEC alleges the nonpublic information is the interest of a private equity firm in acquiring Ferro Corp. According to the SEC’s complaint, this information was discussed at a Ferro Corp. board meeting attended by a board member who was a friend of Mr. Peltz. As a board member, this friend would have a duty of trust and confidence requiring that he not disclose confidential or nonpublic information he obtains as part of his board service. That duty of trust or confidence was clarified to some degree in Rule 10b5-2. 

Courts have wrestled with situations where a family member or confidante of an insider “misappropriates” the confidential information and trades upon it. Rule 10b5-2 codifies the caselaw addressing when someone receiving material nonpublic information has a duty to refrain from trading on it or tipping others who then trade on it. In some cases, groups may expressly enter into an agreement to maintain the confidentiality of information. In other cases, there is a history, pattern, or practice of the parties sharing confidences such that the recipient of the information knows or reasonably should know that the disclosing person expects the information to remain confidential. In some cases, the family relationship – spousal, parent/child, sibling – is presumed to carry with it a duty of trust or confidence which may be rebutted. 

The Houston Chronicle reports that the friend/board member was CEO and Chairman of Tronox Holdings Jeffry Quinn. It is possible that Mr. Quinn disclosed the potential acquisition of Ferro Corp. to his friend Jason Peltz believing that Peltz would keep that information confidential. That may have been the history, pattern, or practice between these gentlemen. Even though it seems the SEC has decided that must be the case – because they did not charge Mr. Quinn with tipping Mr. Peltz – Mr. Quinn is suffering from the betrayal of his trust. Tronox announced that Mr. Quinn is taking a leave of absence as a result of his involvement in the SEC insider trading case against Mr. Peltz. 

Materiality

In order to prevail on charges of insider trading, the SEC must also prove that the information upon which the defendant traded material. Companies have lots of nonpublic information but not all that nonpublic information is material – meaning important to an investor. The term material is not defined by statute. The standard for determining materiality was set forth by the U.S. Supreme Court as follows:

A fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to [act]…. [T]here must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.

Basic v. Levinson, 485 U.S. 224, 231 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448 (1976). Courts applying this standard to events must assess (1) the probability that the event will occur, (2) the anticipated magnitude of the event, and (3) the totality of the company activity. 

It is frequently the case that the interest of one entity in acquiring another entity is material. Here that fact is reinforced by what happened to Ferro Corp.’s stock price when the potential acquisition was publicly announced. This information was not released to the public until March 15, 2016. After the announcement, the price of Ferro’s stock increased by about 5% and trading volume increased significantly. The post-announcement price increase is evidence that investors in the marketplace considered Ferro Corp. more valuable once they learned of the potential acquisition. 

Note: I find it interesting that the SEC seems not to have established that the board member/friend attended the Ferro board meeting because its allegation of that fact is “upon information and belief.” That means they do not have sufficient evidence in hand to allege that as a fact. In insider trading cases, the SEC typically confirms this kind of fact from company minutes of the board meeting, indicating who attended and what was discussed, or from attendees at the meeting. It is interesting that they appear to lack that confirmation in this case.   

How Does the SEC Decide to Investigate Certain Trades? 

The SEC’s litigation release points out that the case originated from the SEC Market Abuse Unit’s Analysis and Detection Center. The SEC has developed specialized enforcement units, like the Market Abuse Unit, to develop and use new technological tools and quantitative and statistical metrics to evaluate trading activity. The Analysis and Detection Center is made up of industry specialists who have analytical, statistical, programming, or investigative skills. These specialists look for patterns in trading data that might indicate illegal activity, such as insider trading. 

Even before the creation of this specialized unit, the SEC brought many insider trading cases. The SEC would investigate trading around the time of the announcement of an acquisition or significant good or bad news. That analysis would be conducted by analyzing “blue sheet” data on trading from brokerage firms and sometimes on the market surveillance analyses conducted by FINRA or other self-regulatory organizations. Investigations might be initiated based upon old fashioned tips as well.  

What is notable lately is that the SEC brings more small-dollar insider trading cases. This is likely because the more sophisticated tools that it has identified unusual trading regardless of whether the trading reaches a particular threshold.  

Once the SEC notes suspicious trading activity, the Staff can obtain information about the accounts in which the trading occurred from brokerage firms. The SEC can obtain information from the company (here Ferro Corp.) about the timeline for the transaction and key personnel who were involved. Often, the SEC or other regulators will ask the company to circulate a list of the names of account holders in which trades were made to determine whether anyone at the company recognizes them. 

With respect to Jason Peltz, the SEC identifies an account in which Ferro stock and options were purchased for the first time just three days after the board meeting at which the potential acquisition was discussed. Purchases were made in this and other accounts until immediately before the public announcement on March 15, 2016. The SEC alleges that an IP address for Peltz’s company accessed the account minutes before the account started making its purchases. The SEC also alleges there were numerous calls and texts between the account holder and Peltz. 

The SEC complaint details the evidence that it obtained showing Peltz’s connection to an overseas account that also made purchases of Ferro stock and options after the board meeting and before the public announcement of the acquisition. The SEC complaint alleges that Peltz directly or indirectly tipped five others who traded in Ferro Corp securities. 

How Does the SEC Prove Someone Acted Illegally? 

In order to prevail on an insider trading case, a type of fraud, the SEC must prove intent. Intent may be proved with circumstantial evidence. It is not unusual for fraud cases to be brought in the absence of any direct evidence. Courts routinely permit cases to go before a jury based upon purely circumstantial evidence of tipping – such as well-timed calls and texts.  

Usually, the SEC will seek on-the-record testimony of the person they suspect of insider trading. This is testimony under oath under penalty of perjury. That is a powerful tool. If a person is later found to have been intentionally untruthful in giving testimony under oath, that person may be criminally prosecuted for perjury. Particularly in investigations, invoking your Fifth Amendment Privilege not to incriminate yourself may be the right course of action. 

Sometimes the SEC Staff will try to get a person to submit to an “off the record” interview before they retain an attorney to represent them. If you are not represented by a securities enforcement lawyer who obtains a written agreement that statements will not be used against you, you are courting disaster. It is a criminal offense to be untruthful in talking with an SEC or other federal government investigator. 18 USC §1001. While the SEC discloses that – with a 5-page tiny font document – before conducting an interview, many an unrepresented person will fail to understand the danger. In the absence of a properly structured agreement, the SEC can use the information it obtains in even an “off the record” interview against you. 

A Note on Rule 10b5-1 Trading Plans

Rule 10b5-1 was adopted in 2000 to address certain court cases in which someone was aware of material nonpublic information at the time of a purchase or sale of a security but was found by a court to not have executed trades “on the basis” of that information. This rule set forth a method by which insiders like corporate officers, for whom any trading might be deemed insider trading, could create advance trading plans that would constitute good evidence that they were not buying and selling securities in their own companies “on the basis” of confidential insider information. This issue was recently in the news when Pfizer’s CEO sold $5.6 million worth of Pfizer stock the same day Pfizer announced the success of its coronavirus vaccine. Even if you have a pre-established trading plan, the sale of a big block of stock on that date can look really bad.