Securities Enforcement Roundup – May 2026

In this issue of our monthly Securities Enforcement Roundup, we highlight top securities enforcement developments from May 2026.

In May 2026:

• The US Securities and Exchange Commission (SEC or the Commission) rescinded its longstanding “gag rule,” a policy restricting public denials following settlements.
• The Financial Industry Regulatory Authority (FINRA) issued a report and held a conference highlighting the progress under the FINRA Forward Initiative and launched a sweep of higher-risk structured products.
• The Commission announced changes in staff, including SEC Commissioner Hester Peirce’s upcoming departure and David Woodcock’s appointment as director of the Division of Enforcement.
• The SEC continued to emphasize individual accountability through insider trading enforcement actions. Other Commission enforcement activity in May included settlement involving alleged whistleblower violations and a focus on actions relating to Section 13(d) filings. FINRA issued fines in anti-money laundering compliance cases concerning low-priced securities.

REGULATORY UPDATES

SEC Rescinds Policy Restricting Public Denials Following Settlements

On May 18, 2026, the SEC adopted a final rule that rescinded its longstanding policy requiring settling parties in civil enforcement actions to refrain from publicly denying the allegations in a complaint or administrative order.[1] Since 1972, the SEC’s “gag rule,” codified in SEC Rule 202.5(e), has prohibited settling parties from denying the Commission’s allegations.[2] Settlement documents typically stated that the settling party neither admitted nor denied the allegations.[3] The new rule states that the Commission will not enforce existing “no-deny provisions.[4]

In rescinding the “gag rule,” the SEC opined that a settling party’s denial of wrongdoing may have a minimal impact on the public interest, but the policy may have created the misimpression that the SEC was trying to shield itself from criticism.[5] The SEC also pointed out that there is no known instance of the Commission seeking to reopen an administrative or civil proceeding for a violation of a “no-deny” provision.[6]

The recission of the “gag rule” is the latest effort by the Commission to preserve the constitutional rights of respondents. Chairman Paul S. Atkins stated that allowing defendants to speak critically of the government is “an important part of the American tradition.”[7] The chairman’s comments echo those he made late last year when discussing the Wells process as “an extension of due process and fundamental constitutional rights that play an integral role in protecting citizens from a powerful government agency that could become policeman, prosecutor, judge, jury, and executioner all in one.”[8] The SEC later amended the Wells process to provide respondents with additional time to respond ostensibly to ensure due process.[9]

Going forward, settling parties will have greater flexibility to deny allegations, but settling parties should take a measured approach, as their public statements may come with collateral consequences through litigation or additional regulatory scrutiny. 

FINRA Highlights Progress Under FINRA Forward Initiative

In May, FINRA issued a report and hosted a conference that touched on its efforts under FINRA Forward, a multi-year initiative to simplify and modernize its rulebook, improve communication with member firms, and leverage technology to make examinations and investigations more targeted and efficient.[10] The report, FINRA Forward: A Year of Progress, highlighted initiatives implemented during the program’s first year, including initiatives to streamline data requests by leveraging technology and internal data analytics.[11]

Demetrios Koutros, Senior Vice President of the Member Supervision’s Operation, Procedures, and Standards group stated that “the largest adjustment is the use of data upfront [sic] and [to] try to utilize the data that FINRA has to allow us to start from a more informed position and allows our examinations teams to work a little bit more efficiently with the industry as we start requesting information.”[12]

One notable development discussed in the report is FINRA’s expansion of its Rapid Remediation program. Through a related announcement, FINRA explained that the program has expanded circumstances in which firms may address certain compliance deficiencies promptly before they become formal disciplinary matters.[13] According to FINRA, the initiative is intended to resolve more issues earlier in the regulatory process, empower firm compliance, and promote quicker solutions to prevent longer, formal investigations.[14] The updates to the Rapid Remediation program indicate FINRA’s willingness to expand the role of examinations in the regulatory scheme.

FINRA Launches Sweep of Higher-Risk Structured Products

FINRA announced a targeted sweep examining member firms’ supervision relating to higher-risk structured products, with a particular focus on non-principal protected “worst-of” structured notes.[15] FINRA claims that these structured products have unique risks that may warrant heightened supervision, including that their terms and features can be complex, and that they can expose investors to significant losses, not correlated with overall market conditions.

FINRA also published a sample request for information regarding firms’ compliance with Regulation Best Interest (Reg BI), including written supervisory procedures, concentration monitoring, training, and information sent to customers.[16] All member firms will not be part of the sweep, but all member firms should review the supervisory system in place to identify potential gaps in supervision of non-principal protected “worst-of” structured notes.

INDUSTRY NEWS

The Commission continues to undergo notable personnel changes. SEC Commissioner Hester Peirce is set to depart the SEC later this year.[17] She has accepted a position as associate professor at Regent University School of Law.[18]

Second, as discussed in our April Securities Enforcement Roundup, the SEC announced in a press release on April 8 that it was appointing David Woodcock as director of the Division of Enforcement; this appointment went into effect on May 4.[19] On May 13, Woodcock spoke on the approach he intends to take as director, noting that his “goals are aligned to those of Chairman Atkins,” and reinforcing the “back to basics” approach Chairman Atkins has emphasized.[20]

Woodcock stated that the Commission’s “focus is, and will remain, on protecting investors and safeguarding markets from real harm,” and emphasized that the Commission’s priorities are addressing instances of fraud (including offering, accounting, and disclosure fraud), insider trading, market manipulation, and breaches of fiduciary duty by advisers misusing client assets.[21] Woodcock also highlighted the reinstitution of the Retail Fraud Working Group, an initiative designed to identify and pursue misconduct that disproportionately harms retail investors.[22]

ENFORCEMENT ACTIONS

SEC Continues to Emphasize Individual Accountability Through Insider Trading Enforcement Actions

The SEC announced one of the most significant market-abuse actions of the year: a sweeping enforcement action charging 21 individuals in connection with an alleged decade-long insider trading scheme involving material nonpublic information misappropriated from multiple global law firms.[23] The SEC alleges that between 2018 and 2024, two mergers and acquisitions attorneys, Nicolo Nourafchan and Robert Yadgarov, orchestrated an international scheme through which they misappropriated client information pertaining to at least a dozen pending corporate transactions and then tipped that information to other scheme participants in exchange for kickbacks on trading profits.

Nourafchan and Yadgarov allegedly later recruited an additional attorney who also misappropriated material nonpublic information about additional deals and tipped scheme participants. The scheme allegedly generated tens of millions of dollars in illicit profits. The US Attorney’s Office for the District of Massachusetts has also filed criminal charges against all 21 defendants in a parallel action.

The case highlights increasing regulatory scrutiny of gatekeepers and professionals with access to highly sensitive transactional information. As we’ve previously reported, the Commission has made claims against individuals, rather than corporate entities, a significant focus under the new administration.[24]

In one of his first public remarks as new enforcement director, David Woodcock emphasized this focus, stating that “[s]afeguarding markets necessarily involves addressing market manipulation and insider trading.”[25] Director Woodcock’s remarks suggest that insider trading enforcement will remain a central priority under the current leadership of the Division of Enforcement.

SEC Settles with Foot Locker Over Whistleblower Violations

The SEC settled an enforcement action against Foot Locker Inc. in May related to the company’s use of separation agreements requiring departing employees to waive their ability to recover whistleblower awards for reporting alleged misconduct to the SEC.[26] The agreements violated Section 21F of the Dodd-Frank Act and Rule 21F-17(a) under the Exchange Act, which prohibits impeding communication with the Commission about a possible securities law violation. Foot Locker consented to the entry of a cease-and-desist order and agreed to pay a settlement of $1,000 per violating employee separation agreement, totaling $148,000 in penalties.[27] Enforcement actions against companies that allegedly included agreements in employment contracts and elsewhere that may have impeded whistleblowing were common during the Gensler Commission, and this latest action is a rare indication that the current Commission will continue to focus on the same conduct.

SEC Focus on Section 13(d) Violations

Another focus of the SEC in May was on beneficial ownership reporting requirements. The SEC charged two companies with violations of Section 13(d) of the Exchange Act, which requires persons who directly or indirectly acquire beneficial ownership of greater than 5% of certain equity securities to file a statement of ownership with the Commission. On May 4, the Commission issued cease-and-desist orders against two companies, MCB Acquisitions Manager LLC and ACM-CPC LLC, for their failure to file the requisite statements with the SEC despite increasing their positions in other companies beyond the 5% threshold.[28]

Section 13(d) is intended to allow shareholders and potential investors sufficient information to evaluate substantial shareholdings and the implications thereof on their own investment. These proceedings are consistent with the SEC’s recent emphasis on investor harm and serve as a reminder to ensure that all SEC filings are timely and complete.

FINRA Issues Fines in AML Compliance Cases Concerning Low-Priced Securities

In May, FINRA continued to focus on anti-money laundering (AML) compliance, suspicious activity monitoring, and supervisory systems for firms engaged in higher-risk trading activity, particularly involving thinly traded or volatile securities that may be susceptible to manipulation, such as penny stocks.

FINRA fined two member firms a collective $1.1 million for alleged AML and supervisory failures relating to penny stock transactions. Both entities were fined for their violation of FINRA Rule 3110 and 2010. The first failed to maintain a reasonably designed compliance program to detect suspicious transactions in low-priced securities, adequate diligence on the accounts of foreign financial institutions and an adequate supervisory compliance system as required by the ‘33 Act. As a result, it was censured and fined $610,000.[29]

The second entity similarly allegedly failed to have reasonable policies and procedures in place to detect suspicious activity in the trading of low-priced securities since at least January 2023.[30] Since its inception, the second entity had accounted for nearly all of the trading volume in overnight sessions involving low-priced securities. The firm was censured, fined $550,000, and agreed to an undertaking in the form of a written certification that it remediated the AML issues identified in the settlement and implemented a compliant AML program.

Notably, the latter of these entities operates an Automated Trading System (ATS), which continues the expansion of regulatory scrutiny of AML programs beyond retail trading. This is consistent with the SEC’s focus on AML in the context of trading platforms.

For example, in 2023, the SEC settled an action against Archipelago Trading Services Inc., another ATS, for its failure to file hundreds of Suspicious Activity Reports related to over-the-counter transactions executed on the system.[31]

The thin trading volumes, price volatility and limited public information of low-priced securities make them attractive targets for manipulative schemes and fraudulent activity. FINRA’s head of enforcement, Bill St. Louis, reminded member firms of their responsibility to detect suspicious activity, stating “[f]irms that engage in high-risk business activity must implement AML programs that are appropriately designed for their specific risk profile.”[32]