When Wall Street bond dealmakers congregated in Las Vegas lastweek for their annual get-together, one group of folks wasconspicuously absent: SEC enforcement officials.

For years now, they've been crashing the marquee event, trying,somewhat awkwardly, to mingle and make industry contacts whilesniffing around for their next big case. But those plans werescuttled this year when word came down from SEC headquartersrecently that there was no room in the budget for investigators toattend.

The measure is part of a series of cuts that the enforcementdepartment — the division responsible for policing federalsecurities laws — is implementing as it braces for deep spendingreductions in President Donald Trump's budget proposal, accordingto two people with knowledge of the matter. In addition to the banon nonessential travel, the department has also imposed a hiringfreeze and curbed the use of outside contractors who assist SEClawyers with cases.

For those at the Vegas convention and more broadly across WallStreet, it's one of the strongest signs yet that the Trump era mayusher in a more lenient, hands-off approach from regulators. Butcritics worry about fewer cops on the beat.

“We're already seeing a quieter enforcement regime” since thechange of administration, said Urska Velikonja, a law professor atEmory University in Atlanta, who has studied the regulator'senforcement history. “The number of enforcement cases is likely tobe down considerably going forward.”

Chris Carofine, a spokesman for the SEC's acting chairman,Michael Piwowar, denied that he had directed any agency division tomake budget cuts or curtail spending. But last week Piwowar saidthat the SEC should review how it allocates resources, particularlybecause the agency's funding might be cut.

“Depending on which way the budget goes and stuff in the future,we're going to have to make some tough choices in terms of usinglimited resources,” he said at a conference in Washington forinvestment advisers.

Trump's nominee to lead the SEC, Wall Street lawyer Jay Clayton,is making progress toward winning Senate approval. The U.S. Officeof Government Ethics is close to signing off on his financialdisclosure form and an ethics agreement involving conflicts ofinterests, a person with knowledge of the matter said March 3.

Judy Burns, an SEC spokeswoman, declined to comment, as did aWhite House spokeswoman.

New Chairman

Morale in the investigatory unit, the SEC's largest with almost1,400 full-time employees, has fallen since Mary Jo White, a formerU.S. attorney who fiercely advocated for the division, stepped downas SEC chairwoman in January. Some staff members are dusting offresumes and calling former colleagues who moved to privatepractices for tips on how to swing through the revolving door.

While White wanted more enforcement powers, Piwowar hasquestioned some of the agency's cases. The former professor hasargued that penalties sometimes harm investors who were innocentvictims of wrongdoing. He's already reined in the division byallowing only the enforcement chief to authorize formalinvestigations, slowing down probes by a few weeks, according topeople familiar with the situation.

The new environment marks a dramatic change from that underformer President Barack Obama. After being blamed for missingBernard Madoff's Ponzi scheme and Wall Street abuses that led tothe financial crisis, the SEC persuaded lawmakers that it neededadditional resources to adequately police markets. Its annualfunding nearly doubled, to $1.6 billion for fiscal 2016, from 2008levels, according to SEC budget reports.

The enforcement division accounted for $513 million of 2016spending. The regulator also reorganized its enforcement divisionwith specialized units, including one that focused on securitizeddebt.

In recent years, SEC officials used the Las Vegas conference tohold closed-door discussions with groups of investors fromcompanies such as Vanguard Group Inc. and BlackRock Inc. The goal:to convince firms to share information with regulators,particularly when practices strike them as inappropriate.

The conference, sponsored by the Structured Finance IndustryGroup, gained notoriety after Michael Lewis's “The Big Short” toldhow short seller Steve Eisman crashed the event just before thecredit crisis hit.

With the market booming once again for debt backed by everythingfrom cars to mortgages, a record crowd showed up for the meetingthis year — more than 6,500 people. None were from SEC enforcement,a list of attendees shows.

Bloomberg News

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