Securities Enforcement Roundup – August 2025

In this issue of our monthly Securities Enforcement Roundup, we highlight top securities enforcement developments from August 2025.

In August 2025:

• The US Securities and Exchange Commission (SEC) named Judge Margaret Ryan as the next director of the Division of Enforcement, with Judge Ryan assuming the role effective September 2, 2025.
• The US Court of Appeals for the Ninth Circuit upheld the SEC’s “no-deny” rule as constitutional on its face but left open the possibility that the rule could be found unconstitutional in particularized situations in the future.
• The SEC announced several proceedings that did not involve fraud or harm to investors.
• The SEC continued to settle multiple disputes with investment advisers for failing to disclose conflicts of interest related to fee structures and compensation.
• The SEC charged a portfolio manager for directing investments into an alleged Ponzi scheme while failing to disclose his significant financial investment into the alleged scheme.
• The SEC continued its use of complex data analytics to identify potential insider trading.
• The SEC demonstrated its focus on manipulative trading, charging an individual trader with “spoofing.”

JUDGE MARGARET RYAN IS NAMED AS THE NEXT SEC DIRECTOR OF THE DIVISION OF ENFORCEMENT

On August 21, 2025, the SEC announced that Judge Margaret Ryan will be named as the next director of the Division of Enforcement. [1] Judge Ryan replaces Acting Director of Enforcement Sam Waldon. Judge Ryan most recently served as a senior judge of the US Court of Appeals for the Armed Forces, where she was nominated to the court in 2006 by President George W. Bush. She obtained senior status in August 2020. She has lectured on military law and justice at both George Washington University Law School and Harvard Law School, and she has also worked as a visiting professor at Notre Dame. [2] Before serving as a Judge, Judge Ryan was a partner at two boutique litigation firms.

Judge Ryan gave a potential preview of her focus as director, stating that she “look[s] forward to joining the Commission in its important work to ensure that the Division is true to the SEC’s mission in taking action on behalf of investors harmed by those who break the securities laws and providing an effective deterrent against fraudulent and manipulative activities in our financial markets.” [3]

NINTH CIRCUIT UPHOLDS THE SEC’S ‘NO-DENY’ RULE BUT LEAVES OPEN THE POSSIBILITY OF FUTURE CHALLENGES

On August 6, the US Court of Appeals for the Ninth Circuit denied a First Amendment challenge to the SEC’s use of its longstanding “no-admit, no-deny” rule in enforcement proceedings. [4]At the core of the litigation was the policy of the SEC, in place since 1972 and codified at 17 CFR § 202.5(e), which allows defendants settling with the SEC to refrain from admitting the SEC’s allegations but also prohibits defendants from publicly denying those allegations. If they do, the SEC is permitted to petition the court to have the case reopened.

The case was filed for review in the Ninth Circuit in March 2024 by 12 individual petitioners—some of whom had previously entered settlements with the SEC—who challenged the rule, including on First Amendment grounds.

Largely relying on precedent in which First Amendment rights can be waived, the Ninth Circuit held that the relinquishment of First Amendment rights in enforcement actions was not per se unconstitutional, noting in part the close nexus between the SEC’s interest of proving the allegations in its enforcement actions and the right that is being relinquished—the defendant’s denial of those same allegations.

Importantly, the Ninth Circuit emphasized its ruling was done on “necessarily narrow grounds” and addressed only the question of whether the rule was always unconstitutional, in other words, unconstitutional on its face, rather than as applied in specific situations. [5] For example, the court noted that there may be a situation in which the civil enforcement defendant can show that they entered into an agreement that was involuntary or unknowing. [6] In addition, the court signaled that defendants could challenge based on time constraints, noting that “the government’s interest may wane as time passes.” [7]

THE SEC FINES COMPANIES FOR RULE VIOLATIONS DESPITE A LACK OF FRAUD OR INVESTOR HARM

Although the SEC’s public pronouncements have been focused on fraud and manipulation, this month, we saw the Commission continue to bring actions involving rule violations that do not involve fraud or investor harm.

For example, on August 1, the SEC announced settled charges against a registered investment adviser for failing to comply with the Custody Rule. [8] From at least 2018 to 2024, the firm’s president, who also served as its chief compliance officer, served as a co-trustee of two trusts that were advisory clients of the firm; had signatory authority on four clients’ accounts; and had power of attorney on five clients’ accounts. The SEC alleged the firm therefore had custody of certain client funds and securities and thereby was required to adhere to the requirements of the Custody Rule. In particular, the SEC alleged the firm failed to arrange for surprise examinations as required by the Rule. As a result, the firm was ordered to pay a penalty of $50,000.

A few days later, on August 4, the SEC announced it settled charges against another registered investment adviser for violating Rule 105 of Regulation M under the Exchange Act, which prohibits short selling an equity security and then purchasing the same security during a restricted period without an applicable exception. [9] The SEC found the firm violated the rule once in November 2022 for the accounts of six private fund clients. The SEC acknowledged that the firm promptly conducted a review for prior violations (none were found) and had updated both its related trading processes and its compliance policies and procedures. The firm was ordered to pay a penalty of $250,000.

THE SEC CONTINUES TO BRING ENFORCEMENT ACTIONS AGAINST INVESTMENT ADVISERS FOR FAILING TO DISCLOSE CONFLICTS OF INTEREST

Conflicts of interest continue to be a perennial area of focus for the Division of Enforcement. As discussed in our July Securities Enforcement Roundup, the SEC had previously settled a matter with an investment adviser for failing to adequately disclose conflicts of interest and overbilling clients. That trend has continued, with the SEC entering into multiple settlements alleging that firms willfully violated Section 206 of the Advisers Act by failing to disclose fee-based conflicts of interest.

This month, the SEC ordered a private fund adviser to pay disgorgement, as well as a $175,000 penalty, alleging the adviser breached its fiduciary duty to the funds by purportedly miscalculating certain fee offsets leading to the firm’s private fund clients being overcharged management fees. The SEC alleged that the adviser failed to adequately disclose the fee offset calculation practices or the resulting conflicts of interest. [10]

In another matter, the SEC alleged that the investment adviser had failed to adequately disclose conflicts of interest when recommending that prospective and existing clients enroll in the firm’s fee-based advisory service to manage their accounts. Specifically, the SEC noted that the conflicts of interests that the incentive compensation system presented were not adequately disclosed.

The SEC also alleged the adviser’s related broker-dealer violated Regulation Best Interest. The involved firms were ordered to pay a civil penalty of $1.5 million and ordered to pay approximately $4 million in disgorgement. [11]

SEC CONTINUES TO USE DATA ANALYTICS TO IDENTIFY POTENTIAL INSIDER TRADING

As anticipated in our Current Developments in SEC Enforcement for Public Companies and A Look Ahead report, the SEC has continued to use advanced data analytics, run through its Market Abuse Unit’s Analysis and Detection Center, to identify patterns of suspicious trading.

The SEC filed a complaint in New Jersey District Court against a former director of a biopharmaceutical company, his brother, his stepdaughter and two of his friends for violating federal securities laws. The complaint alleges that the former director tipped his family and friends to the upcoming acquisition of the biopharmaceutical company and that all five defendants purchased stock based on that information for a collective profit of $500,000. [12] We previously noted the SEC's focus on the life sciences industry, including when it comes to insider trading.

Other cases originating from the Market Abuse Unit’s Analysis and Detection Center include a complaint filed in the Southern District of New York, with a parallel criminal case, alleging that a tipping chain involving an executive and two friends generated millions of dollars in profits from trading ahead of an acquisition announcement. [13]

In addition, in a complaint filed in the Eastern District of New York, the SEC alleged that two defendants obtained material, nonpublic information regarding forthcoming events, such as mergers and earnings results through their employment at a company that assisted clients with making public filings in the SEC’s EDGAR system. [14] According to the SEC’s complaint, the defendants traded on the basis of this information on at least 13 occasions and generated over $2 million in ill-gotten profits. The SEC specifically cited its use of Consolidated Audit Trail (CAT) data to analyze the suspicious trading activity of two individuals charged.

SEC SETTLES “SPOOFING” CHARGES AGAINST INDIVIDUAL TRADER [15]

The SEC also settled charges against a California-based individual trader who had engaged in a manipulative trading practice known as “spoofing.” According to the SEC, the trader placed multiple spoof orders, or orders he did not intend to execute, across related options series. The spoof orders were designed to induce other market participants to trade at manipulated prices. He then placed orders on the opposite side of the market with the benefit of the newly manipulated price and quickly cancelled his spoof orders.

Through this scheme, the trader had obtained approximately $234,000 in illicit profits. When questioned about this trading, the trader further attempted to obscure these spoofing orders by providing false responses. [16]

To resolve the matter, the trader agreed to pay disgorgement of $234,803, prejudgment interest of $52,656, and a civil penalty of $70,441. The trader will also be prohibited from opening, maintaining, or trading in any brokerage accounts without providing the broker-dealer with a copy of the complaint and final judgment entered against him.

COMPLAINTS FILED BY SEC IN ALLEGED $275 MILLION PONZI SCHEME, INCLUDING AGAINST PORTFOLIO MANAGER [17]

Finally, as expected given this Commission’s focus on the protection of retail investors, the SEC charged an individual and his entities for operating an alleged Ponzi-like scheme that targeted veterans and raised more than $275 million. The SEC also is seeking an officer and director bar.

Notably, in a separate related action, the SEC charged the portfolio manager at an investment adviser for breaching his fiduciary duty by investing his private fund client in the scheme without disclosing his conflicts of interest. The complaint also alleges the manager continued to increase the fund’s investment despite multiple red flags. The investment adviser terminated the portfolio manager after an internal investigation and was not named in the suit.