Securities Enforcement Roundup – July 2025

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

In July 2025:

• As part of its FINRA Forward program, FINRA CEO Robert Cook announced a new initiative aimed at ensuring that FINRA’s enforcement process is fair, transparent, and consistent.
• FINRA settled charges with a broker-dealer for $85,000 for allegedly failing to clearly disclose that retail crypto offerings were provided through an unregistered affiliate and for not fairly presenting the risks and benefits of those products.
• The US Securities and Exchange Commission (SEC or Commission) announced settled charges with an investment adviser and its former compliance officer and former president for allegedly failing to disclose conflicts of interest, overbilling clients, and backdating compliance documents during an investigation.
• The Eleventh Circuit struck down the SEC’s 2023 rule on funding the Consolidated Audit Trail as arbitrary and capricious.
• The SEC asked the Eighth Circuit to lift a stay on its climate disclosure rules litigation to get a ruling that will influence whether the Commission rescinds or rewrites the regulations.
• SEC Chairman Paul Atkins announced Project Crypto, a Commissionwide initiative focused on digital assets.
• House Republicans proposed cutting the SEC’s budget by 7% and restricting the use of appropriated funds, including prohibiting enforcement of cybersecurity rules and promulgation of new disclosure requirements.

FINRA LAUNCHES INITIATIVE TO ENHANCE ENFORCEMENT AND MARKET PROTECTIONS

In April 2025, FINRA announced its FINRA Forward initiative, a comprehensive effort to continuously review and enhance its regulatory policies, programs, and enforcement practices to better protect investors, maintain market integrity, and support member firms in complying with regulations.[1]  

In a July 2025 blog post, FINRA CEO Robert Cook highlighted FINRA Enforcement’s critical role in deterring misconduct and preserving investor confidence through a fair, transparent, and consistent enforcement process.[2] To achieve these goals, Cook announced an effort to develop meaningful common-sense improvements to FINRA’s Enforcement program that will allow the Staff to better serve FINRA’s self-regulatory mission.[3]

The initiative will be led by FINRA’s Head of Enforcement Bill St. Louis and supported by outside experts, including former SEC Commissioner Troy Paredes and professor Paul Eckert.[4] They will assess Enforcement’s governance, policies, processes, and communications, as well as its coordination with other regulators, to ensure FINRA Enforcement is effective within and outside the organization.[5] 

FINRA FINES BROKER-DEALER FOR MISLEADING CRYPTO ADVERTISING PRACTICES

FINRA settled a matter with a broker-dealer related to allegations that the firm distributed communications that did not clearly disclose that crypto assets were offered through an unregistered affiliate, which FINRA alleged violated the content standards in FINRA Rule 2210. FINRA further alleged that the advertisements could potentially have confused retail investors about which entity was offing the services and what regulations and protections were applicable.

The settlement, which was released on July 25, 2025, also noted that some of the communications did not provide a balanced description of the associated risks of investing in the crypto assets. FINRA censured the firm and imposed an $85,0000 fine.

This action follows an $85,000 settlement in May 2025 with another broker-dealer for similar violations. Both matters originated from FINRA’s 2022 targeted exam of crypto marketing practices.

SEC FINES INVESTMENT ADVISER, CCO, PRESIDENT FOR CONFLICTS OF INTEREST, OVERBILLING, BACKDATING DOCUMENTS

The SEC announced settled charges against an investment adviser and its former chief compliance officer (CCO) and former president for allegedly failing to adequately disclose conflicts of interest, overbilling clients, and, as to the individuals, creating backdated compliance documents during an SEC examination.[6]

Specifically, the allegations included that the investment adviser breached its fiduciary duty by failing to disclose compensation paid to its affiliate broker-dealer, erroneously billed and collected advisory fees on alternative investments, and failed to refund certain fees upon account termination.[7] The allegedly backdated documents related to purported annual compliance reviews.

The SEC imposed a $1.75 million civil penalty on the investment adviser. For their roles in aiding, abetting, and causing the investment adviser’s violations, the SEC also imposed a $10,000 civil penalty on the CCO and a $20,000 civil penalty on the president, along with censures and cease-and-desist orders.[8]

COURT BLOCKS SEC FUNDING RULE FOR MARKET SURVEILLANCE SYSTEM

A federal appeals court unanimously vacated the SEC’s 2023 Funding Order that allowed self-regulatory organizations (SROs), including securities exchanges, to pass the costs of funding the Consolidated Audit Trail (CAT) onto broker-dealers.[9] 

The original plan for CAT—a single system to gather and maintain trade data across all SROs—was approved by the Commission in 2016 and involved cost-sharing between the SROs and broker-dealers.[10] But the actual cost to set up CAT exceeded estimates by eight times, reaching over $500 million, with projected annual costs of about $200 million a year to run CAT.[11] The Commission’s 2023 Funding Order allowed the SROs to pass the entire cost of running CAT onto their members.[12]

The Eleventh Circuit held that the Funding Order violated the Administrative Procedure Act, finding it was arbitrary and capricious because the Commission did not justify its decision to allow SROs to pass all the costs of CAT to their members and did not meaningfully update its initial economic analysis with actual costs.[13]

The appeals court stayed its decision for 60 days and remanded the matter to the Commission for further proceedings consistent with the court’s opinion.[14]

SEC ASKS EIGHTH CIRCUIT TO RULE ON CLIMATE RULES

As discussed in our March Securities Enforcement Roundup, rules adopted by the SEC during the prior administration created a detailed and extensive disclosure framework concerning climate risks for issuing and reporting companies.

After both private parties and certain states sued to invalidate the rules, the actions were consolidated in the Eighth Circuit and the effectiveness of the rules were stayed pending completion of that litigation. On March 27, 2025, the SEC voted to no longer defend the rules, labeling them “costly and unnecessarily intrusive.”

Various states intervened to defend the rules in the SEC’s place, and the Eighth Circuit paused the litigation on April 24, 2025.[15] At that time, the Eighth Circuit asked the Commission to provide a status report by July 23, 2025 explaining whether the SEC intends to review or reconsider the climate disclosure rules.[16] 

On July 23, the Commission asked the Eighth Circuit to lift the stay and issue a ruling, which would help determine whether the Commission rescinds or rewrites the rules.[17] The SEC’s Democratic commissioner criticized the Commission’s reluctance to fully answer the Eighth Circuit’s question regarding its intentions with the rule, while the Republican commissioners cautioned that enforcement of the rules could impose costly compliance burdens, after having previously questioned whether the Commission had the statutory authority to adopt the rules in the first place.[18]

SEC CHAIRMAN PAUL ATKINS UNVEILS ‘PROJECT CRYPTO’

In remarks on July 31, 2025, SEC Chairman Paul Atkins unveiled Project Crypto, “a Commission-wide initiative to modernize the securities rules and regulations to enable America’s financial markets to move on-chain.”[19]

Among other priorities, the initiative involves

• developing clear guidelines to enable market participants to determine whether a crypto asset is a security;
• modernizing custody requirements;
• developing guidance and proposals to allow nonsecurity crypto assets and crypto asset securities to be traded side by side on regulated platforms;
• updating agency rules and regulations, including potentially amending Reg NMS to facilitate trading of tokenized securities on-chain; and
• considering an innovation exemption to allow new business models and services to quickly go to market.[20]

HOUSE REPUBLICANS PROPOSE BUDGET CUTS TO SEC 

House Republicans have proposed a 7% budget cut to the SEC for fiscal year 2026, reducing its funding from fiscal year 2025 by $153 million and restricting how the agency can use its appropriations.[21] This includes prohibiting the SEC from using funds to enforce its 2023 cybersecurity disclosure rule, creating new disclosure requirements for Regulation D private securities offerings, and collecting personally identifiable information in CAT.