Senator Warren Disparages Nominee for SEC Chair before Confirmation Hearing
Commentary by Steven Lofchie
In a letter to SEC Chair-Designate Paul Atkins, Elizabeth Warren, Ranking Member of the Banking Committee, questioned his "judgement and [] ability to serve as an effective SEC Chair if [] confirmed."
Senator Warren highlighted the following:
Regulatory Failures and the 2008 Financial Crisis.
Senator Warren criticized Mr. Atkins' tenure as an SEC Commissioner from 2002 to 2008. She noted his vote in favor of the 2004 Consolidated Supervised Entity program, which allowed investment banks like Bear Stearns and Lehman Brothers to take on dangerously high levels of leverage. She also noted his role in the 2007 repeal of the "Uptick Rule," a regulation that had been in place for 70 years to prevent excessive short selling that could drive down stock prices.
Senator Warren demanded that Mr. Atkins disclose all votes he cast on SEC rulemakings and enforcement actions during this period.
Ties to FTX and the Crypto Industry.
Senator Warren criticized Mr. Atkins' work as an adviser to FTX, the cryptocurrency exchange that collapsed in 2022 due to fraud and mismanagement. She questioned whether Mr. Atkins was aware that FTX was misusing customer funds while serving as an adviser to its leadership. She also asked for details on how much he and his consulting firm, Patomak Global Partners, were paid for their work with FTX and whether any of those earnings had been subject to clawbacks in the exchange's bankruptcy proceedings.
Senator Warren cited Mr. Atkins' broader work within the cryptocurrency industry, including his ties to the Chamber of Digital Commerce and multiple crypto firms facing SEC scrutiny.
Advocacy for Deregulation and Project 2025.
Senator Warren further criticized Mr. Atkins for his contributions to Project 2025, a conservative policy blueprint that calls for dismantling key financial regulations. She noted that Mr. Atkins received "special mention" in the Project 2025 report for his advocacy of eliminating SROs like FINRA and the PCAOB.
SEC Independence.
In the letter, Senator Warren also questioned the broader implications of Mr. Atkins' potential leadership at the SEC, in light of a February 2025 Executive Order requiring independent regulatory agencies, including the SEC, to submit significant rulemakings for White House review. She questioned whether Mr. Atkins would submit rulemakings for White House approval, whether he believed the president had the authority to direct enforcement actions and how he would handle potential investigations involving President Trump's business interests. Senator Warren emphasized that the SEC must remain independent from political influence, especially in enforcement matters.
Senator Warren requested written responses to these questions before any Senate vote on Mr. Atkins' confirmation.
Commentary
With a letter that runs 34 pages and contains 196 footnotes, Senator Warren demonstrates that within her still beats the heart of an academic. Notwithstanding the number of footnotes, the principal criticisms that she makes, as listed above, don't seem likely to win too many moot court arguments. Here is the flaw in each:
1. The Consolidated Supervised Entity regime did not cause the collapse of the registered broker-dealers. It was largely intended to give the SEC some oversight over the holding companies of broker-dealers, the way the Federal Reserve Board has oversight of bank holding companies. In any case, Bear Stearns' managed (but did not own) two private funds that heavily invested in mortgage-backed securities. When those funds failed, investors lost confidence in Bear Stearns generally and in fact lost confidence in mortgage market. The US Government allowed Bear Stearns and Lehman to fail before stepping in to rescue the rest of the financial system. Had it not done so, pretty much every bank in the country might have gone down with the failure of the mortgage markets. (Note that following the run of bank failures during the prior Administration, probably as a result of its 2008 experience, the bank regulators very quickly stepped in before the contagion spread.) Back in 2008, as a condition to saving those few broker-dealers that were not affiliated with banks, the Federal Reserve Board required that they become affiliated with banks, which had the result of bringing those broker-dealers within Federal Reserve Board oversight, making the CSE regime irrelevant.
2. Most economists would agree that the "Uptick Rule" did not make much sense and there is no call for its return. Leaving aside any question of economic theory, the Uptick Rule was created in a different age: there was basically one dominant exchange (the NYSE) and shares traded in eighths of the dollar. Today, there are over 20 stock exchanges and numerous other ATS trading markets; and stocks may trade in a fraction of a cent. The Uptick Rule simply would not work in today's market. (Also note that the Uptick Rule has been replaced by Reg SHO, which has been effective in serving its purpose of preventing extended settlement failures resulting from short sales.)
3. There is no more reason to believe that Mr. Atkins knew of the problems at FTX than to believe that then-SEC Chair Gensler knew of those problems. Likewise, there is no shame in having represented crypto firms that were criticized or taken to court by the SEC. History is unlikely to view the reign of SEC Chair Gensler favorably in light of the number of court cases that the SEC lost for having overstepped its authority or failed to comply with the APA. Not the least of the SEC's failures during the Gensler regime was that it did not conduct an intellectually convincing analysis of whether cryptocurrencies were in fact "securities" under the Howey test. Rather, the SEC simply assumed that any asset that was purchased with the prospect of profit was a security—an assumption that is wrong.
4. The legal basis for the independent agencies and for SROs is not a trivial question. How is it that an SRO can be considered non-governmental entities when all of their rules must be approved by the government? One can certainly disagree with Mr. Atkins' views on the subject, but that does not mean they are not worthy of attention. On the other hand, there is some irony in Senator Warren's attack on this issue, since she was the principal architect of the CFPB, which, as created by Dodd-Frank, was found to be unconstitutional. (Under its original terms, the Chair was largely unconstrained by the President or by Congress's power of the purse.)
5. As to the Senator's argument that the "independent" agencies must be independent, it is not clear why that should be, or that they are, in fact. If it is important, why shouldn't every regulator be independent? Of course, the reality is that the Chairs of the independent agencies are nominated and selected by the President (whoever it may be at that time); they are not really so independent.
In short, Senator Warren's criticisms are more notable for the number of footnotes than for the strength of her arguments.