What DOGE will risk in cutting at the SEC

Elon Musk’s extra-governmental team is coming for the SEC – and whether it can push job cuts that don’t sacrifice investor protections is a massive question.

Already, that group, known as DOGE, has worked with the Trump administration on potentially hundreds of thousands of layoffs and firings across the federal government. That has happened at a breakneck pace, in some cases leading to staff reductions that did not appear to be intended. At the Department of Energy, for example, hundreds of workers who received termination notices had their jobs reinstated after it became known that they worked on nuclear weapons or handled nuclear waste.

A risk at the Securities and Exchange Commission, which has been at odds publicly with Musk in several instances, is that its institutional knowledge could quickly be depleted and be very difficult to get back.

“The SEC’s work is a product of the expertise and persistence of the professionals who work there,” said Charles Riely, partner at Jenner & Block and a former supervisor in the SEC’s Division of Enforcement. “There is definitely the risk that any cuts will cut in the wrong places, and the agency will lose very valuable human capital that is essential to its mission.”

It’s all but certain that, in the name of efficiency, Musk’s team will suggest cuts among the SEC’s roughly 5,000 full-time workers.

And it would be hard to argue that the SEC – like any other government agency – couldn’t be made more efficient, lawyers told InvestmentNews.

“There have perennially been reports that government bureaucrats, government workers don’t work as hard,” said Jill Fisch, Perry Golkin professor of law and co-director of the Institute for Law and Economics at the University of Pennsylvania. “Those debates have been going on for certainly as long as I’ve been a practicing lawyer.”

But even if that is one’s view, “It’s a far cry from fraud,” Fisch said.

It may be clearer to make the case that government, at least pertaining to the SEC, has gotten bigger than some people would like, than it is to say the agency is rife with fraud and abuse, she said.

One side of the argument is that the SEC, through a high number of rulemaking efforts and enforcement, has protected investors – and the other side is that there has been far too much regulation and enforcement, she said.

It’s unknown what types of roles will be singled out by the cost cutters at the SEC, but those in rulemaking and enforcement “are obviously less central to the SEC’s revised mission” in the Trump administration, she said.

Cuts could make it more difficult for the SEC to police Wall Street and help investigate things like Ponzi schemes and insider trading, said Benjamin Schiffrin, director of securities policy at Better Markets.

“Making things more efficient is good. But any dramatic reduction in the size of the SEC’s workforce is going to have real consequences for Americans,” Schiffrin said. “Throughout the building there are people whose role it is to ensure Americans are able to invest safely. The reason that America’s capital markets are the envy of the world is that they’re well-regulated and well-policed.”

It will also be difficult for outsiders, like the team at DOGE, to peer into the SEC and make sense of how staff resources are directed, he said. For example, investigations are often complex and require a lot of staff time to complete, and it may be tough to separate actual inefficiencies from the nature of the work, he said.

And, if there are indeed big staff reductions, it may be hard to see whether there are any efficiencies gained – as undiscovered or uninvestigated securities violations in the future could simply go unknown.

“It’s going to be incredibly difficult to measure the impact of any cuts,” Schiffrin said.

This week, the Trump administration told a court that, despite public representations to the contrary, Musk is not technically the leader of DOGE, though he advises the president.

The dynamics of the audit to the SEC could be different than those of other agencies, given the regulator’s history with Musk. Most recently, the SEC sued him over Twitter stock purchases he made in 2022, which allegedly were not properly disclosed before his purchase of the company, now known as X.

“He’s never been a fan of the SEC’s enforcement efforts when they’re directed at him,” Fisch said.