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.

There has been a virtual 180 degree turnaround in crypto regulation in the last two weeks. In this article, Lisa Braganca comments on the new administration’s directive to agencies like the SEC to develop regulations that address the specific characteristics of digital coins. We may see digital coin securities being issued and traded in the not-too-distant future. They can be used as a method for businesses to raise capital under regulations that account for them being resident on a blockchain – not “physically” held by an SEC authorized custodian.

Braganca Law LLC has been ranked in Illinois Chambers Spotlight 2025 Guide and recognized as a top small firm handling high-quality work.

Bragança Law was selected based on an independent and in-depth market analysis, coupled with an assessment of our experience, expertise and calibre of talent.

The Chambers Spotlight rankings were awarded to select firms in the state. These ranked firms were recognized for their strengths in key practice areas vital to Illinois businesses and residents, including Antitrust, Corporate/Commercial, Insurance, Labor & Employment and many more.

Bragança Law stood out for its exceptional work and is recognized in Litigation – White Collar Crime and Government Investigations.

Founding Partner Lisa Bragança expressed the firm’s gratitude: “Bragança Law is honored to be recognized by Chambers and Partners in their Spotlight Ranking for Illinois. This acknowledgment reflects our commitment to providing top-tier legal services tailored to the unique needs of our clients and the complex matters that we help them navigate.”

This recognition underscores Bragança Law’s position as a key player in Illinois’s legal landscape, offering clients throughout the nation access to high-quality legal representation that combines big-city expertise with local specialized support.

Background on Firm

Bragança Law is based in Chicago, Illinois but represents clients all over the country. We defend individuals and businesses in SEC, FINRA, and other federal state regulatory investigations and litigation, represent whistleblowers, and handle business disputes. We help clients with:

• Responding to SEC and other Federal and State Governmental Agency Subpoenas
• Responding to FINRA 8210 Requests
• Defending businesses and individuals in litigation with the SEC, other Federal and State Governmental Agencies, and disputes with Receivers
• Filing SEC Whistleblower Tips
• Representing Individuals and Entities in Business Disputes

Bragança Law specializes in representing small businesses and individuals, often in coordination with other law firms who represent the primary targets of the investigation. Bragança Law stresses the importance of recognizing the financial realities for clients when the SEC and other governmental agencies can, when they choose, marshal almost unlimited resources to hire experts, hire trial consultants, and staff a case with numerous trial counsel. Because government attorneys have enormous discretion in determining whether to bring charges and what charges to bring, it is important at the outset to have a consistent strategy in place before responding to a subpoena or request for information. In numerous investigations, we have been able to obtain favorable results for clients by developing a consistent and credible strategy from the beginning.

Background to Chambers and Partners

Chambers and Partners has over 30 years of US research in the Legal Market and therefore uniquely placed to identify markets where there is a significant collection of leading smaller firms. Chambers is on a mission to uncover and champion the best legal talent across the United States, wherever it exists, starting with shining a spotlight on select states in 2024. https://chambers.com/

Chambers seeks to identify the leading small to medium-sized law firms offering a credible alternative to Big Law. The ranked firms were selected based on independent and in-depth market analysis, coupled with an assessment of their experience, expertise, and calibre of talent.

Chambers Spotlight covers the states of California, Illinois, Ohio, Texas, Florida, North Carolina, and New York.

For questions, please contact:

David A. O’Toole

David@SECDefenseAttorney.com, (847) 906-3460

CHICAGO, Ill. — We are in the midst of a world-wide pandemic and millions are out of work. Yet, life goes on, bills need to be paid and credit reporting agencies are still keeping track of who is making their payments on time.

Most Americans are no doubt feeling the struggle but one Chicago-based investment attorney, Lisa Bragança, says many at the margins are getting kicked while they are down. It is only going to get harder for those struggling to make ends meet in 2020, in part because of biased credit scores.

“Bias in credit is one of those issues that generally fly under the radar because it is complicated and not transparent.” Bragança, a former Security and Exchange Commission Chief, explains. Bragança goes on to say “Also because its effects are primarily felt by lower-income families. According to the last United States Census, 38.1 million people are classified as living in poverty. Recently figures report 528,000 Chicago area people living in poverty. While it is hard for anyone to bounce back from economic setbacks, it is especially for low-income minorities. Biased credit scoring is one obstacle to their rising out of poverty.”

According to the last United States Census, 38.1 million people were considered to live in poverty. Today’s numbers show roughly 528 thousand of those people live in the Chicago area. Bragança points out, while most Americans can bounce back from economic hardship it’s harder for minorities. She says it’s especially tough for Black and Hispanic Americans with poor credit.

Long History of Bias Credit Reporting in the United States

“In the past, the government addressed overt bias in the credit scoring process. That stopped credit rating agencies from explicitly including race (and gender) as a factor in their calculations. It was a good start, but we know that did not eliminate all bias,” Bragança added.

The Fair Housing Act which prohibited redlining and discrimination against Blacks in employment, education, housing, and lending has only been around since the 1960s. Regulations were passed in 1968 to protect citizens from lenders basing their decision on race, sex, religion, age.

According to Bragança, racial discrimination by banks and lenders persists from cases that the U.S. Department of Justice brought against banks like JPMorgan Chase & Co (2017) and Wells Fargo & Co (2012). In those cases, DOJ laid out charges that in the first decade of the 21st Century African American and Hispanic homeowners were steered by these banks to higher-cost subprime mortgage loans while white homeowners with the same creditworthiness were not. These costly subprime mortgage loans end up in foreclosure far more often than ordinary mortgage loans – which negatively impacts borrower credit scores.

It’s been ten years since the Federal Reserve studied the credit reporting system. According to the 2010 study, the Federal Reserve published, there was not any evidence of a bias even though it had been receiving complaints for years.

“Our results provide little or no evidence that the credit characteristics used in credit history scoring models operate as proxies for race or ethnicity. The distributions of credit scores for different racial or ethnic groups or across genders are essentially unaffected by the re-estimation or redevelopment of the baseline credit scoring model in any of the race- or gender-neutral environments. This suggests that credit scores do not have a disparate impact across race, ethnicity, or gender.” 

– Federal Reserve Board, Washington, D.C.

Investment Attorney, Bragança says the Fed study fails to account for African American and Hispanic individuals experiencing foreclosures, job losses, and other adverse events as a result of discrimination. When African Americans and Hispanics have been saddled with high-cost subprime loans, they are more likely to default, which negatively affects their credit scores. When credit scoring systems rely upon inputs that are biased, they generate an output that is biased.

Lower-income African American and Hispanic communities are particularly hurt by these biased credit scoring practices. Families may not be able to rent a home near their preferred jobs and schools because of their credit scores. Individuals may not be able to obtain an auto loan at a reasonable interest rate because of their credit scores – keeping them from accessing better jobs and education.

Not All Payment Types Considered

Credit reports weigh all types of information like amount owed, length of credit history, new credit, types of credit as well as payment history. Payment history is weighed the heaviest, making up 35 percent of the score.

“The fact that Black folks were excluded for most of the 20th century from homeownership means not only did they not accumulate wealth in the same way as their white counterparts, but they also did not have the opportunity to develop good credit history based on years of making mortgage payments. An African American family may have decades of on-time rent and utility payments, but those payments may not be weighed as heavily as mortgage payments.” Bragança explains.

Time and patience will undoubtedly be a factor moving forward. The most important thing is to be aware of the importance of a credit score. Step one is to request a free credit report from one of the three major credit reporting agencies. You can review the report to identify any erroneous information. If information is not accurate, contact the credit bureau to dispute the information.

Chicago Attorney Calls for Change

Credit reports, touted as neutral by private companies, are subject to ‘GIGO’ – garbage in garbage out. If the inputs are biased, the outcome will be biased. And this could only get worse as banks and lenders use even less transparent methods to make lending decisions, like artificial intelligence. The increased use by banks and lenders of artificial intelligence and other automated programs in determining lending practices are likely to be as biased as the current credit scoring system.

“What concerns me at the moment is the increased use by banks and other lenders of artificial intelligence and other automated program in determining lending practices. These programs may reinforce long-standing historical biases that disadvantage the Black community just like credit scoring.” Bragança said.

About Bragança Law LLC

Bragança Law was founded by Lisa Bragança, a graduate from the University of Chicago where she received a B.A. (with honors) and a  J.D. / M.B.A. (Order of the Coif, honors).  As a former Branch Chief in the Division of Enforcement of the Chicago Office of the Securities & Exchange Commission, she handled investigations of accounting fraud, Ponzi schemes, insider trading, churning, and unsuitable investments.

During her time at the SEC, Lisa collaborated with the DOJ in the investigation of subprime auto lender Mercury Finance Company. Three senior executives, including the Chairman/CEO, were sentenced to prison terms as a result of this investigation.

Lisa also collaborated with the DOJ on an investigation of Foreign Corrupt Practices Act violations arising out of the bribery of Haitian customers officials. The CEO and another senior executive were convicted and sentenced to substantial prison time due to this investigation.

Throughout her career, Lisa has been an advocate for the rights of people with physical, cognitive, and psychiatric disabilities. She previously served as counsel in three statewide class actions seeking to compel the State of Illinois to comply with the Americans with Disabilities Act. She also regularly speaks about elder financial exploitation, securities regulation, recovering investment losses, and cryptocurrency.

Are you a small business in the state of Illinois that needs a loan to get through the coming months? If so, you might be able to get help from several state programs.

Illinois Small Business Emergency Loan Fund

The Illinois Small Business Emergency Loan Fund offers small businesses low interest loans of up to $50,000. This program is available to businesses located outside of the City of Chicago with fewer than 50 workers and less than $3 million in revenue in 2019.  Successful applicants will owe nothing for six months and will then begin making fixed payments at a below market interest rate for the remainder of a five-year loan term. Learn more about eligibility and how to apply here.

Downstate Small Business Stabilization Program

Another program is available to downstate Illinois small businesses. The Downstate Small Business Stabilization Program offers small businesses of up to 50 employees the opportunity to partner with their local governments to obtain grants of up to $25,000.  To get these loans, you will need to work with your local government officials to apply for funding. Information about these loans is available here.

Free Legal Assistance

If your Illinois nonprofit or small business contributes to economic development or delivers social services in low-income neighborhoods, you may be eligible for pro bono legal services from the Chicago Lawyers’ Committee for Civil Rights. The Committee is helping small businesses now during the pandemic.

Even if you are not eligible for pro bono services, check out the huge amount of information for small businesses the organization has compiled on its COVID 19 page. You can find the information here.

Federal Small Business Administration

The US Small Business Administration has a Covid 19 resource guide for small businesses that you can access here.

In addition, the US Senate Committee on Small Business and Entrepreneurship has a guide to the CARES Act on its website that you can access here.

In a bankruptcy proceeding, trustees can use state fraudulent transfer law to “claw back” certain prebankruptcy payments made by the debtor. Those funds are then available for distribution to creditors as part of the debtor’s estate. The Ninth Circuit Court of Appeals recently held that the IRS is not exempt from these clawback claims. In re DBSI, Inc., No. (Aug. 31, 2017) In addressing this issue a few years ago, the 7^th Circuit Court of Appeals reached the opposition conclusion. In re Equipment Acquisition Resources, Inc. (“EAR”), 742 F.3d 743 (7th Cir. 2014). It looks like this is an issue that the US Supreme Court will need to resolve.

DBSI, Inc. and its affiliates were a Ponzi scheme. They engaged in the acquisition, development, management, and sale of commercial real estate properties throughout the United States. They used new investor funds to meet existing obligations. This scheme eventually caught up with them. Several of the company insiders were indicted and later convicted of fraud.

The DBSI trustee obtained a bankruptcy court order directing the IRS to return approximately $13.4 million of tax payments that DBSI made on behalf of the fraudsters. The IRS appealed that order to the district court.

While the IRS’s appeal was pending, the Seventh Circuit addressed the exact same issue and came to the opposite conclusion as the bankruptcy court. The district court was not persuaded by the Seventh Circuit’s reasoning, and affirmed the bankruptcy court’s ruling. Nor was the Ninth Circuit.

The Ninth Circuit did not agree with the IRS and Seventh Circuit’s position that a clawback of the IRS tax payments runs afoul not only of sovereign immunity, but also potentially of the Appropriations Clause and the Supremacy Clause. EAR, 742 F.3d at 747–48. The Ninth Circuit’s decision is consistent with the majority of district and bankruptcy courts that have addressed this issue.

The Ninth Circuit’s decision is available here.