SEC Chairman Paul Atkins has vowed to crack down on defendants who “lie, cheat, and steal,” but Wall Street’s watchdog seems to be taking a cue from President Donald Trump as he lets high-profile securities fraudsters off the hook.
Pardons and commuted prison sentences granted in Trump’s second term to Ozy Media Inc. co-founder Carlos Watson, Nikola Corp. founder Trevor Milton, and venture capitalist Devon Archer prompted the Securities and Exchange Commission to drop civil enforcement actions against all three individuals, without penalties or repayments for harmed investors.
The SEC continued to litigate against co-defendants who didn’t get a reprieve from Trump, but even some of those efforts wrapped up in recent weeks with financial recoveries only a fraction of what was initially pursued by US prosecutors.
Overall, defendants given a pardon or commutation in Trump’s second term after being sentenced for securities fraud were initially supposed to pay a combined $176 million in restitution and criminal fines, according to a Bloomberg Law review of Justice Department pardon records.
“When the criminal conviction is wiped out, that leaves a lot more water for the SEC or other agencies to carry, which makes their position more challenging,” said Liz Oyer, former pardon attorney for the Biden-era Justice Department. “In many cases, the SEC is just giving up on seeking civil penalties in cases where pardons have been granted.”
Enforcement Shakeup
As Nikola’s Milton—represented against the SEC by Brad Bondi, a former senior lawyer at the agency and brother of ex-Attorney General Pam Bondi—separately seeks to leverage his pardon from Trump to pursue a $70 million claim in the electric vehicle startup’s bankruptcy, the SEC’s civil enforcement cases are likewise testing the reach of the president’s decisions to forgive criminal offenses.
While previous Democratic presidents also came under scrutiny for their pardons, Trump’s moves are complicating the SEC’s push to target fraudsters and limits restitution for harmed investors.
“Having one less pot to go after is absolutely harmful, especially if that missing source of restitution is the figurehead that presumably would be the wealthiest or the one with the most liquid assets,” said Shant Karnikian, a managing partner at Kabateck LLP who has tracked clemency and pardons under Trump.
The SEC’s dismissals and settlements also add to concerns, raised by Democratic lawmakers following the sudden departure of former enforcement chief Margaret Ryan, around dropped cases against crypto billionaires Justin Sun and others linked to Trump and his family.
The SEC on Wednesday announced David Woodcock, a partner at Gibson, Dunn & Crutcher and former director of the agency’s Forth Worth, Texas, regional office will take over the enforcement unit.
An SEC spokesperson declined to comment.
A spokesperson for Milton said the SEC “initiated contact with defense counsel to indicate that the SEC was planning to dismiss the case, which is the appropriate and just result.” Investor losses “rest squarely on the predatory practices of the activist short sellers.”
Lawyers for Watson and Archer didn’t respond to requests for comment.
‘This Is Political’
Atkins, in a statement accompanying the SEC’s fiscal 2025 enforcement report this week, said the agency has “redirected resources toward the types of misconduct that inflict the greatest harm—particularly fraud, market manipulation, and abuses of trust.”
The government’s case against Watson and Ozy would seem to fit the bill.
The SEC in 2023 alleged that Watson directed Samir Rao, the company’s former chief operating officer, to impersonate a YouTube executive on a call with bankers at
“The quantum of dishonesty in this case is exceptional,” a federal judge in New York said, imposing a nearly 10-year prison term on Watson before Trump commuted his and Ozy’s sentences, wiping out about $37 million in restitution.
After dropping claims against Watson and Ozy in September, the SEC last month opted to forgo monetary penalties from Rao and fellow ex-Ozy executive Suzee Han, citing “extraordinary cooperation,” according to a joint filing.
In another case underscoring the SEC’s challenges, Trump pardoned British billionaire Joe Lewis last November, helping him avoid jail time and seek medical treatment after he was sentenced in the US for insider trading.
The SEC by that time had already reached a deal requiring Lewis to pay about $1.6 million. In February, the agency obtained final consent judgments requiring Lewis’ two private pilots accused of using insider information to pay about $200,000 each.
But in Lewis’ criminal case, a judge had separately ordered $5.4 million in fines and restitution as part of his sentence before Trump’s pardon eliminated those financial penalties.
“The pardons are having the effect of leaving regulatory agencies like the SEC to do much of the heavy lifting that ordinarily the criminal process would do,” Oyer said.
In the cases of Watson, Archer, and Milton, the SEC moved quickly to dismiss its suits against them after Trump granted clemency, even though the president’s moves don’t technically wipe away civil liability.
“This is political, and the SEC doesn’t want to piss off the president,” said Richard Painter, a corporate law professor at the University of Minnesota and former White House ethics lawyer under President George W. Bush.
Wasted Effort
Private litigation remains an avenue for investors looking to recoup their money from fraudsters, even as the SEC drops its civil cases.
“If the investors want to go after the kingpin there, I don’t think he can wave around his presidential pardon and say, ‘I don’t have to pay the investors their money,’” Painter said.
At the SEC and other agencies, however, career civil servants who handle enforcement will likely grow wary of initiating new cases against individuals who are likely to secure a pardon down the line, Karnikian said.
“You have people looking at it and going, ‘I’m not going to waste two, three years of my life building this case when it’s probably going to get dropped,’” he said.
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