The SEC’s Lone Democrat Fears Darkness Awaits Investors

Caroline Crenshaw’s term as a member of the SEC ends in January. (Ting Shen/Bloomberg)

Key Points

• Caroline Crenshaw, a departing SEC commissioner, expressed concern that the core of the market structure is under attack, fearing markets may resemble casinos.
• Crenshaw stated that Republican-led initiatives have reduced disclosure and anti-fraud enforcement, while promoting cryptocurrency initiatives that benefit the Trump family.
• The SEC has experienced a 15% to 20% reduction in staff headcount, leading to fewer enforcement cases and dismissed existing cases.

Caroline Crenshaw’s last speech before ending her term as a member of the U.S. Securities and Exchange Commission was dark. Even doomy.

“I am the lone Democrat at the SEC,” she told an audience at the Brookings Institution think tank on Thursday. After Jan. 3, the commission may find itself with three Republican members and no dissenting voice.

“I fear that the very core of our intricate market structure is under attack,” she said. “And instead of safeguarding our markets for investors to fund their retirements in safe and sustainable ways, we are moving in a direction where markets start to look like casinos.”

She added: “The problem with casinos, of course, is that in the long run, the house always wins.”

The White House didn’t immediately respond to a request for comment on Crenshaw’s speech.

Since President Donald Trump’s election put Republicans in charge of the securities regulator, Crenshaw said her colleagues have worked to reduce disclosure, shareholder proxy access, and antifraud enforcement. At the same time, the Republican-led agency has lent its ear to hidden industry voices and preoccupied itself with promoting cryptocurrency initiatives that personally benefit the Trump family, she said.

Crenshaw said her Republican colleagues say their program will revitalize public markets and “make IPOs great again.” They need not do so by punishing investors and the agency’s public servants, she said.

The SEC has been far from perfect, Crenshaw allowed. Yet its bipartisan history has found consensus and curbed policy swings across administrations, she said. If Trump leaves the commission with all Republicans—as he has at other federal agencies—the resulting extremes may be reversed by a later administration, she said.

“Markets like predictability,” Crenshaw said. “What markets don’t like is rules changing every four years.”

Among the other looming changes that dismay her are the addition of private equity assets to workers’ 401(k) retirement plans and trading alterations that could make publicly displayed stock prices more scarce.

Crenshaw said the agency has brought fewer enforcement cases and dismissed existing cases “left and right,” often in parallel with the president’s pardoning of criminals who committed “massive white-collar frauds.”

Experienced staff have been lost with headcount reductions of 15% to 20%. “When we remove the tools that detect fraud and make it less costly to commit fraud, people will commit more fraud. It’s as simple as that,” Crenshaw said.

The departing commissioner tried to brighten her dark canvas with glimpses of a future when the agency returns to work on behalf of everyday Americans. But her mood seemed pretty gloomy.

“We’re being told that ‘Today is a new day at the commission’,” Crenshaw said. “But with each successive day, the night grows longer. I fear that the darkest depths of winter still lie ahead for America’s capital markets.”

Write to Bill Alpert at william.alpert@barrons.com