SEC Policy Statement Outlines Framework for Criminal Referrals of Potential Regulatory Violations to DOJ

Among other factors, SEC staff will consider the risk of harm, the gain to the defendant, whether the defendant knew the conduct violated the law and whether DOJ involvement will provide additional meaningful protection to investors

The SEC has issued a new policy statement, effective June 20, 2025, outlining how staff will address referrals of alleged regulatory violations to the Department of Justice (DOJ) for potential criminal enforcement.

The policy statement was published in response to President Trump’s May 2025 Executive Order, Fighting Overcriminalization in Federal Regulations, which states that it is the policy of the United States that criminal enforcement of regulatory offenses is disfavored (particularly strict liability offenses) and that unwitting Americans should not be prosecuted for violations of regulations they have no reason to know exist. Rather, criminal prosecutions of regulatory offenses “should focus on matters where a putative defendant is alleged to have known his conduct was unlawful.”

Among other things, the order directs all federal agencies, within 45 days of the date of the order, to publish guidance in the Federal Register describing their plans to address criminally liable regulatory offenses. In accordance with this directive, the SEC’s policy statement adds new Section 202.14 to the agency’s Rules of Practice for Informal and Other Procedures providing that, when SEC staff are deciding whether to refer alleged violations of criminal regulatory offenses to DOJ, they should consider, among other factors:

1. 1. 1. The harm or risk of harm, pecuniary or otherwise, caused by the potential offense, including whether the putative defendant’s conduct harmed or risked harming many victims;
      2. The potential gain to the putative defendant that could result from the offense;
      3. Whether the putative defendant held specialized knowledge or expertise or was licensed in an industry related to the rule or regulation at issue;
      4. Whether the putative defendant knew the conduct would cause harm or violate the law;
      5. Whether the putative defendant is a recidivist or has otherwise engaged in a pattern of misconduct; and
      6. Whether the involvement of DOJ will provide additional meaningful protection to investors.