Early focus on fraud

Under the Biden administration, white-collar defense lawyers are expecting the intensity of those investigations to only increase, with an early focus on fraud connected to the pandemic and a continued emphasis on offering more transparency into how the Justice Department decides to grant leniency to companies in return for cooperation.

Across the federal bureaucracy, there is an expectation that Biden's regulatory and enforcement agencies will take a more broadly focused consumer protection lane. Regulatory action is predicted to increase at the U.S. Securities and Exchange Commission and elsewhere, and some are hopeful the Biden administration will take a more open approach to the nascent cannabis industry.

More civil rights litigation, environmental/climate justice

Meanwhile, the Justice Department is expected to bring renewed vigor to civil rights litigation and environmental enforcement, which had gone largely dormant during the Trump era.

"I'd assume anyone who becomes AG is going to remind the world there's a civil rights division and an environmental division," Biz Van Gelder, a leading white-collar defense lawyer at Cozen O'Connor, said in December. President-elect Joe Biden introduced Judge Merrick Garland of the U.S. Court of Appeals for the D.C. Circuit as his pick for attorney general on Jan. 7.

"The policy is going to be to reignite the regulatory oversight that DOJ has. That, to me, is probably going to be the biggest difference" from the Trump years, Van Gelder told The National Law Journal in December.

Biden has emphasized that he wants the Justice Department to restore its independence under his administration following a stretch in which U.S. Attorney General William Barr was broadly condemned as doing Trump's political bidding and belittling career prosecutors.

But his Justice Department platform also calls for creating a new environmental and climate justice division to complement the work of the environment and natural resources division and more aggressively pursue cases over pollution and other corporate conduct that jeopardizes the public health.

"We are expecting a much-invigorated enforcement atmosphere, and we are briefing our clients on elements of that," said Jamie Gorelick, a partner at Wilmer Cutler Pickering Hale and Dorr who served as the second-ranking Justice Department official in the Clinton administration. "The range is from financial institution enforcement, which could come out of the [Consumer Financial Protection Bureau] or DOJ, to anti-money laundering to environmental justice. I expect the latter to be very, very prominent in this administration, and we have been working with clients on making sure that they see their environmental issues from the perspective of environmental justice."

Changing hands at the SEC

Regulatory enforcement "is going to significantly increase," under the incoming Biden administration, according to Daniel Suvor, partner at O'Melveny & Myers in Los Angeles and co-chair of the firm's State Attorneys General Litigation and Investigations Group, and Vice President-elect Kamala Harris' chief of policy and senior counsel during her time as California attorney general. "I don't think that's going out on a limb."

Daniel Suvor, with O'Melveny & Myers.

As of press time in early January, names being floated to replace Securities and Exchange Commission Chairman Jay Clayton under Biden include Gary Gensler, former chairman of the Commodity Futures Trading Commission, and Preet Bharara, the U.S. attorney for the Southern District of New York under former President Barack Obama.

Expect the Biden administration SEC chair "to be more in the vein" of former SEC Chair Mary Jo White, "with many expecting another former U.S. attorney" such as Bharara to be considered for the post, said Nicolas Morgan, office chair of the Los Angeles litigation practice at Paul Hastings.

White's "'broken windows' philosophy stressed enforcement action even for minor transgressions, reflecting her background as a criminal prosecutor," Morgan said.

By contrast, "Clayton's emphasis on increasing market access to 'Main Street' investors reflected his background and priorities," Morgan added.

Clayton's departure at year-end left the SEC "rudderless," said James Angel, associate professor of finance at Georgetown University's McDonough School of Business.

SEC Commissioner Elad Roisman, a Republican, was named acting SEC chair by President Donald Trump on Dec. 28.

During his more than three years as chair, Clayton advanced more than 65 final rules to date from the commission's policy divisions and offices, chief among them Regulation Best Interest and the Customer Relationship Summary form, or Form CRS.

Clayton said on Oct. 19 that he was "cautiously satisfied" with Reg BI but noted that three months after its enforcement date he was noticing some troubling trends.

As for a revamp of Reg BI under the Biden administration's watch, "I don't expect the SEC to scrap Reg BI and start from scratch," said Barbara Roper, director of investor protection for the Consumer Federation of America. "I do expect [the SEC under Biden] to move relatively quickly to clarify the meaning of best interest, and to do so in a way that represents a clear enhancement over suitability, and to clarify how it determines whether policies and procedures to mitigate conflicts of interest."

The SEC will need to work with the Financial Industry Regulatory Authority and the states, Roper added, "to evaluate what is, and is not, happening as firms implement Reg BI. Once they've had time to do that, I think there will be additional areas where action is needed to refine the rule, but those changes will need to be evidence-driven."

Investment advisers and brokers, according to Morgan, can expect the Reg BI "seesaw to tilt back toward imposing a fiduciary standard on brokers whether through new rulemaking, enforcement actions that push the envelope on the current Reg BI standard, guidance from the staff, or all three."

Private equity and hedge fund managers should also expect "a return to the kind of scrutiny applied to their sector during the second term of the Obama administration," Morgan said.

Another chance for cannabis policy?

After four years of little to no regulatory change in the cannabis space, industry leaders are looking to parlay increasing public support for legalized marijuana into friendlier laws and rules under the Biden administration.

Forty-four states have now enacted laws decriminalizing or legalizing some form of marijuana. Voters in Arizona, Montana, New Jersey and South Dakota approved recreational-use measures in November.

"The success of the ballot initiatives in red states bodes well for existing bipartisan legislation that will defer to states' rights … as well as legislation that will assist the industry in its banking needs," said Patricia Baldwin Gregory, general counsel at Keystone Canna Remedies.

The Jan. 5 election of two Georgia Democrats to the U.S Senate and the resulting shift of that house from Republican control has breathed new life into stalled marijuana industry-backed legislation, including the MORE Act, the SAFE Banking Act, and the STATES Act.

Jamie Gorelick, partner with Wilmer Cutler Pickering Hale and Dorr in Washington, D.C., on Wednesday, February 6, 2019.

"A flip of the Senate from red to blue is a green light for cannabis policy," said Melissa Kuipers Blake, co-chair of the cannabis and industrial hemp industry group at Brownstein Hyatt Farber Schreck.

Incoming Senate Majority Leader Chuck Schumer "has been a long-time supporter of cannabis reform and we are hopeful he will make this conversation a priority in Q1 or Q2 of 2021," Blake said. "We expect all cannabis reform measures to be on the table."

During the campaign, Biden publicly supported decriminalizing cannabis, though he has not offered full-throated support for federal legalization. Vice President-elect Kamala Harris was the lead sponsor of the MORE Act, which would remove marijuana from the Controlled Substances Act and shift regulatory power to the states.

"We will decriminalize marijuana, and we will expunge the records of those who have been convicted of marijuana," Harris said during an October debate with Vice President Mike Pence. The cannabis industry also will be looking for greater clarity on federal regulations, particularly related to hemp-derived products such as CBD and marijuana research. The U.S. Food and Drug Administration has issued guidance on cannabis-related research and provided some answers on CBD additives. But it has not released clear, broad rules in that area, leaving manufacturers to look to states such as New York for regulations.

"The FDA's future policy on CBD regulation is harder to predict, although it may be reasonable to expect the status quo to remain while the agency continues to grapple with the COVID-19 pandemic," said Epstein Becker Green partner Delia Deschaine.

The DEA also has been sued for its continuing listing of marijuana as a highly restricted Schedule 1 drug under the Controlled Substances Act.

"The fact that Biden has picked Xavier Becerra to serve as the next secretary of Health and Human Services could serve as a bellwether for marijuana down-scheduling, although likely not complete removal from the CSA, by DEA, in 2021," said Deschaine. "In considering any potential scheduling action, DEA must request a scientific and medical evaluation from HHS. In the past, HHS has uniformly recommended that marijuana remain in Schedule I. However, Becerra has a pro-cannabis track record. Therefore, we could see a change in HHS's policy in 2021."