Published on Mar 14th, 2024 |

SEC Commissioner, Mark Uyeda, Discusses the Administrative State

SEC Releases


SEC Commissioner, Mark Uyeda, recently addressed the Council of Institutional Investors on the administrative state. He voiced his concerns at the growth of the administrative state and finds that a very broad interpretation of certain statutes could give the SEC a blank check for its regulatory goals.

New Private Fund Adviser rules, the definition of a dealer, and the interaction with crypto are examples of this uncontained growth, according to Uyeda.

Private Fund Rules

Private Funds Rules

  • The SEC uses an expansive view of Section 211(h)(2) of the Investment Advisers Act.
  • Sales practices, conflicts of interests, and compensation schemes are terms that can be broadly construed.
    • Uyeda finds that conflicts of interest are everywhere in a market driven by self-interest.
    • Almost any communication could be considered a sales practice when the underlying goal is to gain investors or increase services.
    • Any form of payment could be considered a compensation scheme.
  • The Commission has argued that Private Funds, despite being statutorily excluded from regulation under the investment company act, can still be regulated under the Advisers Act; Uyeda wonders where the line can be drawn under that interpretation.

Definition of a Dealer

  • Under recent SEC decisions, Uyeda finds it difficult to find the limiting principle on who is a statutory dealer.
  • Enforcement cases have been launched even if the Firms had no customers and traded securities held for relatively long time periods.

Defining a Security

  • Uyeda believes that the SEC has labeled a security as any item sold that derives values based on the efforts of another.
  • Although the most recent battle has been with cryptocurrency, Uyeda asks if this could be applied to other assets such as land, pre-purchase commitments, art, and/or collectibles.
  • Uyeda discusses how these definitions could even apply to real estate and explains how this lack of limiting principle could lead to absurd conclusions.

Vigilant's Conclusion

Vigilant’s Conclusion

Commissioner Uyeda’s comments are obviously his own, and do not reflect on the views or opinions of the SEC. However, his concerns about how the SEC is interpreting its boundaries provides important insight.

At a time of record-breaking enforcement and rule adoptions, it appears likely that the SEC’s aggressive agenda will continue for the foreseeable future.

Uyeda’s comments suggest that the SEC sees their reach as more expansive than previous Commissions. With the currently Regulatory landscape we are in, even for larger, more sophisticated Firms, having a second set of eyes outside of the Firm from experienced and qualified individuals is a crucial layer to consider. It can be beneficial by having more targeted support in areas of need surrounding the compliance program in place and can help create a proactive compliance culture that can adjust quickly to the SEC’s regulatory decisions.

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