The proposed Department of Government Efficiency (“DOGE”) in incoming President Donald J. Trump’s administration promises an ambitious agenda of “regulatory rescission, administrative reductions and cost savings” with the goal of “mass head-count reductions across the federal bureaucracy” by July 4, 2026.[1] Many questions remain about the logistical and legal paths to accomplish these objectives. But assuming it is possible to achieve reductions of this scale at an independent agency such as the U.S. Securities and Exchange Commission (“SEC”), what might the SEC look like post-DOGE?

The SEC’s Congressional Budget Justification Annual Performance Plan (“Budget Justification”) for fiscal year 2025[2] provides some clues as to how DOGE’s “lean team of small-government crusaders”[3] might go about identifying potential cost savings and redundant positions that could be cut within the SEC. The Budget Justification includes numerous statistics underlying the SEC’s request of a congressional appropriation of $2,594,000,000 for fiscal year 2025,[4] including line-item budget amounts and information about SEC staffing, broken down by the number of positions and full-time equivalents in the agency’s various offices and divisions. The SEC seeks to fill 5,621 positions constituting 5,156 full-time equivalents (“FTEs”).

Whether Congress ultimately decides to appropriate the full budget request, which is up over $400 million from the amounts appropriated to the SEC in fiscal years 2023 and 2024, remains to be seen, but it provides a good starting point. One would assume DOGE’s staff would likewise begin their analysis with the SEC’s budget request.

Cost-Cutting

The single largest line-item of the Budget Justification is $1,697,565,000 for personnel compensation and benefits,[5]which accounts for approximately 65 percent of the total budget request. We will return to personnel in a moment. Various other expenses account for the rest, with two items constituting the lion’s share of this remainder:  $109 million set aside for rent, communication, and utilities,[6] and “other contractual services” accounting for over $750 million.

DOGE could shrink the SEC’s real estate profile by consolidating its regional offices, as the SEC recently did when it announced the closing of the Salt Lake City regional office, and by reducing leased space in the remaining offices, which would be rational if large-scale reductions in force are planned. The Budget Justification provides scant detail as to what the $750 million in “other contractual services” entails, but in testimony to Congress in June in support of the Budget Justification, outgoing SEC Chair Gary Gensler stated that $457 million has been requested for information technology, for which the agency “cut IT spending by roughly a quarter in 2024.”[7] Still, that leaves almost $300 million in unspecified contract spending. No doubt the DOGE team will carefully scrutinize these items as it has promised to focus on “federal contracts that have gone unexamined for years.”[8]

With employee costs constituting nearly two-thirds of the Budget Justification, and with DOGE desiring to “identify the minimum number of employees required at an agency for it to perform its constitutionally permissible and statutorily mandated functions,” headcount reductions would be inevitable if DOGE is successful. We next turn to how those reductions might play out.

Outsourcing

For purposes of this thought experiment, let’s start with a comparatively easy example. The second largest operating unit at the SEC is the Division of Examinations, which has requested 1,267 positions (1,156 FTEs),[9] for which $594,330,000[10] is earmarked in the Budget Justification. EXAMS, as it calls itself, is responsible for conducting compliance inspections and examinations over a wide range of SEC-regulated entities, including broker-dealers, investment advisers, investment companies, stock exchanges, and other market intermediaries. A table in the Budget Justification provides a breakdown of the division’s projected workload for fiscal 2025, revealing a total of 3,198 planned examinations.[11] Of these, 2,324 (nearly 73 percent) concern examinations of registered investment advisers.

Responsibility for investment-adviser examinations has proven to be a hot-button issue over the years, with various interest groups lobbying for and against outsourcing this task to a third party such as the Financial Industry Regulatory Authority (“FINRA”), which already conducts compliance examinations on the securities brokerage industry. Reducing the EXAMS workload by 73 percent does not necessarily equate to a 73 percent reduction in its headcount or budget request, but assuming so for the sake of argument leads to a headcount reduction of approximately 924 positions (843 FTEs) and a budget reduction of nearly $434 million. This is no doubt the kind of significant cost-cutting that DOGE aspires to, but does it really count if the costs are simply shifted to a private-sector regulator who then levies an inspection fee on the regulated entities?

Eliminating Redundancies

A hypothetical DOGE cost-cutter might also look for overlapping responsibilities across the SEC staff, of which there are many examples.  The SEC’s Office of Investor Education and Advocacy seeks funding for 43 FTE positions in fiscal year 2025 at a total cost of $24,681,000.[12] According to the Budget Justification, OIEA fulfills two primary functions for what it calls “individual investors”:  “(1) assisting investors with complaints and questions about the securities markets and market participants, and (2) conducting educational outreach to individual investors.”[13] Down the proverbial hall from OIEA resides the similarly-named and similarly-tasked Office of the Investor Advocate. Notably, the Investor Advocate seeks funding for 18 FTE positions, on par with 2024 but up 28 percent over 2023, for a total expense of $11,307,000.[14] The Investor Advocate, not unlike OIEA, states that its four “core functions” are to “(1) Provide a voice for investors, (2) Assist retail investors, (3) Study investor behavior, and (4) Support the SEC’s Investor Advisory Committee.”[15]

The Office of Investor Advocate is required under the Dodd-Frank Act,[16] though the statute only provides that the head of the office, “after consultation with the Chairman of the Commission, may retain or employ”[17] staff, which could be interpreted such that no staff (other than the head of the office and a statutorily required “ombudsman”)[18]are required by law. Still, there seems to be sufficient overlap between the two separate offices so that it would seem possible to combine the two to stay in compliance with the statutory requirement for an Office of Investor Advocacy, reducing headcount along the way. Eliminating all but the two statutorily mandated SEC employees in these two offices would theoretically save the agency in the neighborhood of $35 million.

Likewise, the Office of the Advocate for Small Business Capital Formation, also required by statute,[19] seems to have responsibilities that overlap with the Office of Small Business Policy within the Division of Corporation Finance. Other similar examples are also apparent across the agency. In addition to the agency’s Office of Chief Accountant, which employs a Chief Accountant who supervises a staff of accountants, several of the SEC’s operating divisions also employ Chief Accountants who supervise teams of subordinate accountants. But for DOGE, will eliminating a few overlapping positions here and a few redundant positions there make a noticeable difference in the size of the agency or its congressional appropriation? Perhaps these are the kinds of “pinpoint executive actions that would result in immediate savings”[20] that DOGE promises.

Targeting Discrete Programs

Another potential area for DOGE is to target discrete SEC programs. One for consideration is the shareholder no-action letter[21] process under Rule 14a-8[22] whereby eligible shareholders can submit a proposal for inclusion in a company’s proxy statement for the annual meeting of shareholders. The rule contains numerous procedural and substantive grounds by which a company can exclude proposals, and the SEC staff in the Division of Corporation Finance has for decades issued these letters to companies.

In issuing no-action letters as to the excludability of shareholder proposals under Rule 14a-8, the SEC staff metes out a kind of rough justice, seldom pleasing either companies or proponents. The subjective standards for granting no-action relief fluctuate from year to year, often changing markedly with a change in presidential administrations. The entire process is something of an anomaly for the SEC as it is the only formalized program by which the SEC staff seeks to mediate disagreements between issuers of securities and their investors.

What if the SEC staff were to get out of the business of issuing no-action letters for shareholder proposals? Rule 14a-8 does not require a company to seek or obtain no-action relief before excluding a proposal, and instead simply obligates a company intending to omit a proposal from the proxy statement to provide written notice to the SEC staff with an explanation of its reasons for exclusion.[23] Both proponents and companies have turned to the federal courts instead of the SEC to resolve disputes over shareholder proposals,[24] at which point the SEC staff as a matter of policy demurs to the courts. The SEC staff could simply determine to cease providing no-action relief on the subject as a matter of prudence, as it has with other difficult subjects, such as whether a good private placement exists.

What savings might come from ceasing to issue Rule 14a-8 no-action letters?[25] The Budget Justification does not provide a clear answer. In its workload data, the Division of Corporation Finance estimates that it would issue 190 no-action letters under Rule 14a-8 in fiscal 2025, consistent with its estimates for the two prior fiscal years.[26] No specific number of employees is assigned to this task, but its inclusion in the SEC’s budget when so many other similar tasks did not make the cut implies that the exercise requires a material amount of staff time and attention. Historically, the division has created a seasonal task force for this purpose that draws from the division’s office of chief counsel and other operating units to respond to Rule 14a-8 no-action requests. Presumably, these staffers could be redeployed to other more pressing tasks (such as rescinding SEC rules affecting public company disclosure), or some FTE positions could be eliminated entirely.

Mass Layoffs

The single largest SEC division is the Division of Enforcement, which seeks a congressional appropriation for 1,595 positions (1,447 FTEs) at a cost of $812,397,000. Enforcement accounts for just under 31 percent of the positions sought and just over 31 percent of the total budget. Any effort to reduce the SEC budget in a non-trivial way would no doubt run through this division since it comprises nearly one-third of the agency’s staff and annual spending.

Significant reductions in the number of Enforcement staff would require the agency to be far more selective in choosing cases to investigate and litigate. To offset some of the reduction in personnel, the agency could outsource more of the enforcement caseload to self-regulatory organizations such as FINRA, which already has a robust enforcement department, and state securities regulators could shoulder more of the burden under blue sky statutes. An active private securities tort bar also exists, and private plaintiffs’ ability to bring suits under the federal and state securities laws would not be impeded if the SEC’s enforcement division were to shrink.

There are areas of the law, however, where no private right of action exists and only the SEC may enforce a particular provision of the federal securities laws.[27] Shifting costs to third parties is not the same as eliminating those costs entirely, and some states may have neither the bandwidth nor the inclination to increase blue sky enforcement. In fiscal 2023, Enforcement received more than 40,000 separate tips, complaints, and referrals from whistleblowers and other sources,[28] which does not necessarily account for other leads generated organically. Inevitably, in downsizing the Division of Enforcement, DOGE and policy makers must confront the difficult question of how little SEC enforcement over the U.S. capital markets is enough.

Next to consider for downsizing are what Chair Gensler refers to as the three “programmatic divisions”:  Corporation Finance, Trading and Markets, and Investment Management.[29] These three divisions are the agency’s workhorses, serving as the central points of contact for the various registrants under the SEC’s jurisdiction and originating almost all rules and agency interpretations. They have collectively requested total appropriations of $486,773,000,[30] for a total of 1,093 positions (977 FTEs) for fiscal 2025.[31] In its workload request, Trading and Markets estimates that for fiscal 2025 it will review 1,150 potential enforcement actions and respond to 17,000 requests for interpretation and guidance, among many other tasks.[32] Investment Management estimates it will oversee registered investment companies managing $31 trillion in assets and 15,600 registered investment advisers managing $115 trillion in assets.[33]Corporation Finance expects to review 3,760 public company filings, again constituting only a subset of its total workload.[34]

Deep cuts to each of the three programmatic divisions would begin to affect the ability of the SEC to oversee the various registered entities it is statutorily required to supervise. Presumably, any downsizing efforts will be timed to permit outgoing staff to first undertake the work necessary to rescind some set of to-be-identified rules and regulations. According to DOGE, “The number of federal employees to cut should be at least proportionate to the number of federal regulations that are nullified. . . .”[35]

Like any complex organization, the SEC also maintains a significant back-office operation. The Budget Justification seeks funding for 903 positions (814 FTEs) at a cost of $376,937,000 for fiscal 2025 under the heading “Agency Direction and Administrative Support.”[36] Employees under this category include personal staff for the five commissioners; public affairs; the SEC’s Office of the Secretary; various employees reporting to the Chief Operating Officer in areas such as finance, IT, and human resources; and the agency’s ethics counsel, among others. As the footprint and headcount of the agency are reduced, proportional reductions in back-office positions would also be expected as they would have fewer FTEs to support.

So, How Low Can You Go?

Central to DOGE’s analysis is its vision for the future. Shrinking the SEC down to 3,235[37] positions – an over 40 percent reduction – would return the agency to its approximate size in the year 2000. With the proliferation of new technology, the capital markets have become far more complicated to supervise then they were 25 years ago. But if the SEC has underinvested in technology in that time, as Chair Gensler has suggested recently to Congress, future investments in applications such as those involving data analytics and artificial intelligence (each of which the enforcement division has already begun to use) could obviate the need for larger numbers of human staff in the coming years.

Beyond the five commissioners, the SEC’s authorizing statutes only require the hiring of a relatively small number of employees (such as the Investor Advocate and its ombudsman noted above), such that the minimum number required by law is likely fewer than 20.[38]

Another objective of DOGE is identifying “the minimum number of employees required at an agency for it to perform its constitutionally permissible and statutorily mandated functions”[39] Downsizing the SEC down to just a few hundred staffers would require a drastic reimagination of the agency’s operations.

Running on a skeleton crew relative to today’s numbers, the agency may be required to return to its 1930s-era roots as a lean market regulator, with most of the remaining staff focused on oversight of securities exchanges, broker-dealers, clearing agencies, and other securities market intermediaries, as well as money market funds and other potentially systemically important financial institutions. A scaled down enforcement division would perhaps pursue only mammoth cases where there is widespread investor harm. Future rule-writing would slow to a trickle in the three programmatic divisions. Few staffers would remain to answer questions from the public and issue related interpretive guidance. And so on.

* * * * *

The foregoing scenarios are not intended to recommend or approve of any particular path, but rather to illustrate the difficult choices DOGE and other policymakers would be required to make as part of any effort to shrink the SEC substantially. One trusts that DOGE is sincere when it says agency staff “whose positions are eliminated deserve to be treated with respect, and DOGE’s goal is to help support their transition into the private sector.”[40] The next two years will certainly be ones to remember at the SEC.

ENDNOTES

[1] Elon Musk & Vivek Ramaswamy, Op-Ed, The DOGE Plan to Reform Government, Wall St. J., Nov. 20, 2024, available at https://www.wsj.com/opinion/musk-and-ramaswamy-the-doge-plan-to-reform-government-supreme-court-guidance-end-executive-power-grab-fa51c020.

[2] SEC Fiscal Year 2025 Congressional Budget Justification Annual Performance Plan (Mar. 11, 2024) (hereinafter “Budget Justification”), available at https://www.sec.gov/files/fy-2025-congressional-budget-justification.pdf.

[3] Musk & Ramaswamy, supra note 1.

[4] Budget Justification, supra note 2, at 13.

[5] Id. at 13.

[6] Id.

[7] Chair Gary Gensler, Testimony Before the Senate Appropriations Subcommittee on Financial Services and General Government (June 13, 2024) (hereinafter “Gensler Testimony”), available at https://www.sec.gov/newsroom/speeches-statements/gensler-testimony-061324.

[8] Musk & Ramaswamy, supra note 1.

[9] Budget Justification, supra note 2, at 12.

[10] Id. at 22.

[11] Id.

[12] Id. at 43.

[13] Id.

[14] Id. at 49.

[15] Id. at 48. Interestingly, these items do not perfectly align with those statutorily mandated under Section 4(g)(4) of the Exchange Act, 15 USC § 78d(g)(4).

[16] See 15 USC § 78d(g).

[17] Id. § 78d(g)(3).

[18] Section 4(g) of the Securities Exchange Act, 15 USC § 78d(g) requires that the office of Investor Advocate employ both a head of the office and an ombudsman

[19] Id. § 78d(j).

[20] Musk & Ramaswamy, supra note 1.

[21] A no-action letter is a kind of interpretive letter from the SEC staff that provides assurance to the petitioner as to whether the staff would refrain from recommending enforcement action if the petitioner undertakes the course of action described in the letter.

[22] 17 CFR § 240.14a-8.

[23] See 17 CFR § 240.14a-8(j).

[24] Compare Trinity Wall Street v. Wal-Mart Stores, Inc., 792 F.3d 323 (3d Cir. 2015) (proponent initiated suit against company) withApache Corp. v. Chevedden, 696 F. Supp. 2d 723 (S.D. Tex. 2010) (company initiated suit against proponent).

[25] Though far less common, staff in the Division of Investment Management also occasionally issues no-action letters under Rule 14a-8 to registered investment companies, and that work is not included in the estimate of 190 letters Corporation Finance provided.

[26] Budget Justification, supra note 3, at 24.

[27] See, e.g., Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. ___, 144 S. Ct. 885 (2024) (no private right of action in pure omission case under Section 10(b) of the Exchange Act and Rule 10b-5(b)).

[28] Gensler Testimony, supra note 7.

[29] Id.

[30] See Budget Justification, supra note 2, at 14 (adding the budget requests for the three divisions).

[31] See id. at 12 (totaling the personnel requests for the three divisions).

[32] Id. at 27.

[33] Id. at 32.

[34] Id. at 24.

[35] Musk & Ramaswamy, supra note 1.

[36] Budget Justification, supra note 2, at 12 and 14.

[37] See SEC Annual Report for Fiscal Year 2000 (Dec. 31, 1999) at 159, available at https://www.sec.gov/pdf/annrep00/ar00full.pdf.

[38] Section 4(h) of the Exchange Act, 15 USC § 78d(h), requires each of the Division of Trading and Markets and the Division of Investment Management to employ a “staff” of examiners, separate and apart from those under the direction of the Division of Examinations. A “staff” possibly implies more than one employee, but would two for each division satisfy the statute? Would retaining simply one examiner per division be permissible? One must also assume that Congress would tolerate deep cuts to the SEC’s Office of Inspector General, which would seemingly need far less staff to oversee a much smaller agency.

[39] Musk & Ramaswamy, supra note 1.

[40] Id.

This post comes to us from Scott Kimpel, a partner at the law firm of Hunton Andrews Kurth LLP.