Last week, President Trump issued an executive order – entitled “Fighting Overcriminalization in Federal Regulations” – with the goal of curbing the use of criminal penalties otherwise imposed by federal regulations. The executive order argues that citizens can’t possibly know all of the federal regs out there, and that larger companies have an advantage because they can hire lawyers more easily than the average American.
The securities laws are unique because the SEC can bring civil actions but not criminal ones. The SEC works in tandem with the Department of Justice, which can bring criminal actions, if conduct arises that might trigger a criminal penalty. In close cases, it can be tough for the SEC to decide whether to refer a case to the DOJ – and this executive order could well push the gray area aside, with only conduct that clearly has ill intent being targeted.
New SEC Chair Paul Atkins has long been a proponent of individual accountability, so it will be interesting to see how this executive order impacts the pursuit of bad actors.
Here’s a summary of the executive order:
1. Limited criminal enforcement
- Reserve criminal charges for willful violations causing harm
- Focus on defendants who knew conduct was unlawful
2. Strict liability limitations
- Strict liability crimes “generally disfavored”
- Prefer civil penalties over criminal charges
- Respect due process and jury trial rights
3. Transparency requirements
- Agencies must publish criminal regulation catalogs
- Annual website updates required
- Unlisted offenses discouraged from prosecution
4. Clear notice for new regulations
- Federal Register publications must state criminal penalties
- Regulations must specify required intent level
- Strict liability proposals trigger higher review
5. Mens rea standardization
- Agencies to review criminal intent standards
- Establish default culpability requirements
- Justify deviations from default standards
6. Prosecution referral guidelines
- Agencies must publish enforcement criteria
- Consider harm, benefit and specialized knowledge
- Focus on intentional violations, not mistakes
Authored by
Broc Romanek