SEC Deregulation Shifts Focus to Crypto, Diminishing Investor Oversight

Key Quotes

"studies are showing that the sec is doing a lot less enforcement these days you know and some of it is partly due to staffing issues right like the sec i think a lot about 20 of the staff have left since the beginning well since january 20th since since you know trump term term two um you know people left or they took the buy out or or you know what have you but you know enforcement you know either by number of cases or the size of the settlements the sec is just kind of sleeping they're just not as active as they've been in the past and that's been well documented by some academic studies and some other people who follow that part of the sec"

Michelle Leder explains that the Securities and Exchange Commission (SEC) is currently engaged in significantly less enforcement activity compared to previous periods. Leder attributes this reduction, in part, to staffing issues, noting that a substantial portion of the SEC's staff has departed. This decrease in enforcement is evidenced by both the number of cases brought and the size of settlements reached, indicating a less active regulatory environment.

"he's just known for being a big booster of crypto in between the time like when he left the sec last time and you know went to work you know in private practice he was you know representing a number of crypto firms and so he's of course taking that you know background with him to the sec and so there's a lot of like you know i i joke around like you know and i'm going to be dating myself here but like you know that uh you know episode of the brady bunch where it was like jan jan jan well this is like crypto crypto crypto -- and that's all it seems like the sec is really focused on"

Michelle Leder describes the new SEC chairman as a strong proponent of cryptocurrency. Leder highlights that his prior experience included representing crypto firms in private practice, a background he has brought to his current role. This focus is so pronounced that Leder humorously likens the SEC's current emphasis to a repetitive chant of "crypto, crypto, crypto."

"look i think that you know there is you know some regulation that probably could be trimmed but do you do it with like you know a scalpel or do you do it with like a chainsaw -- you know i think with anything there's things that can always be made better and improved right -- but i think this wholesale approach to like all regulation is bad and it's costing people money -- is a little bit of an overkill"

Michelle Leder acknowledges that some regulations could be improved or reduced, but she cautions against an overly aggressive approach. Leder uses the analogy of a scalpel versus a chainsaw to illustrate her point, suggesting that targeted adjustments are preferable to broad, sweeping changes. She argues that a wholesale rejection of all regulation as inherently bad and costly is an excessive viewpoint.

"this idea that you know you can go -- you know i again i think like you know you can throw out i guess the baby with the bathwater so to speak i hate to use that expression but -- you know could there be a little bit less -- you know -- in the quarterly earnings yeah maybe we don't have to do like the powerpoint presentation and the detailed earnings call and like the big thing but still report earnings you know and you know give people a taste of what's going on i think going to every six months would be really -- bad for investors overall"

Michelle Leder expresses concern about the proposal to eliminate quarterly earnings reporting, likening it to discarding the baby with the bathwater. Leder suggests that while some aspects of quarterly reporting, like detailed presentations and calls, might be reduced, the fundamental reporting of earnings is still crucial. She believes that moving to a six-month reporting cycle would be detrimental to investors.

"but i think that what we're seeing in the wake of the elon vote -- you know where shareholders overwhelmingly approved the compensation and i think you know tesla is sort of a special situation right because it's like a cult of personality i mean you know nobody i can't think of many other ceos let's say that have that kind of like you know platform that kind of you know personal you know identification too i mean you know obviously because of uh you know x and and you know all of his followers on x -- so you know and and the fans of tesla you know the cars and everything so it's this a bit of a unique situation but we're seeing in the wake of that situation we're seeing a number of examples where executives are also being rewarded and what seems like outsized awards and it's almost like well tesla did it so why can't we"

Michelle Leder observes that following the shareholder approval of Elon Musk's compensation package, there is a trend of executives receiving similarly large awards. Leder characterizes the Tesla situation as unique due to Musk's "cult of personality" and strong personal identification with his brands. She notes that other executives are now seeking comparable outsized rewards, seemingly using Tesla's situation as a precedent.

"well you know anytime there's a cybersecurity a couple of years ago in 2022 the sec put in new rules again this was under gary gensler that required a lot more disclosure about cybersecurity incidents -- and they required companies to actually disclose this in an 8k using a section a particular section so that it could be found very easily you know instead of -- a cyber you know and so that you know if you were looking for cybersecurity incidents you can find them pretty quickly"

Michelle Leder explains that the SEC implemented new rules in 2022 requiring increased disclosure of cybersecurity incidents. Leder notes that these rules, enacted under Gary Gensler, mandated that companies disclose such incidents in a specific section of an 8-K filing. This was intended to make the information easily discoverable for those seeking to track cybersecurity events.