SEC increasing scrutiny on private credit—valuation is the key

Topline

• SEC focused on  valuation practices as access to alts increases

• ICYMI: Carta pushing to allow employee shares in 401(k)s

• National AI standard faces setback while industry backdrop is increasing pressure to act

• Federal data privacy bill gets a reboot

• Quick hits

SEC focused on valuation practices as access to alts increases

The SEC is sharpening its focus on valuation practices as retail access to private markets accelerates, turning what was once a back-office function into a front-line regulatory priority. Private credit AUM has grown from $300B in 2010 to nearly $2T in 2025, with increasing exposure through retail-facing regulated fund structures. At the same time, regulators are seeing real-world stress: redemption pressures, valuation disputes, and widening gaps between marks and realizations.

Recent SEC activity across enforcement actions, roundtables, and public statements from agency leadership has emphasized documentation, independence, and responsiveness to new information as key pillars. Chairman Atkins put it directly at the Economic Club of Washington last week: “opacity in this space can be an issue…valuation, transparency, and credit quality are key.”

Examiners are moving beyond traditional compliance reviews and into the mechanics of valuation itself, probing committees, pricing methodologies, governance frameworks, and redemption processes in interval funds and other retail-facing products. Industry participants are already seeing this translate into exams focused on consistency of methodology, reliance on internal vs. third-party marks, how valuations respond to stress and covenant breaches, and alignment between valuation outcomes, fees, and disclosures. This aligns with the agency’s 2026 exam posture, which explicitly calls out complex, illiquid, and retail-distributed products—including private credit and alternative funds—as areas of heightened scrutiny.

Why it matters: Valuation is becoming the gating issue for retailization. As private credit, private equity, and other illiquid assets migrate into interval funds, tender offer funds, and other semi-liquid vehicles, regulators are focused on a core tension: how do you offer periodic liquidity on top of assets designed to be illiquid? 

But fund managers shouldn't assume institutional-only structures are free from scrutiny. Even managers without retail exposure should expect that rising scrutiny of the asset class overall will translate into harder questions from LPs, auditors, and examiners alike, particularly as valuation disputes and mark-to-realization gaps become more visible across the industry.

What to watch: Whether the SEC’s valuation exam focus remains concentrated in retail-distributed structures or begins to extend explicitly to traditional institutional private fund managers, and how LPs begin incorporating valuation governance into their own due diligence frameworks.

ICYMI: Carta pushing to allow employee shares in 401(k)s

Millions of startup employees are building wealth in equity, but the retirement system was designed for a different era—and it’s leaving them behind. 

Right now, you can contribute your cash salary to a 401(k), but you can’t contribute the equity compensation you’ve already earned, already paid taxes on, and already own. For many startup and growth-stage company employees, equity is their largest long-term asset, but the rules won't allow it to be held in the container it's best suited for..

Carta is working to change that. Our proposal would let employees transfer vested shares directly into a Roth 401(k)—the same tax treatment as an after-tax cash contribution, with future gains growing tax-free. Unlocking this policy friction point would provide a meaningful retirement savings vehicle for startup employees and update the retirement system to reflect the modern economy.

National AI standard faces setback while industry backdrop is increasing pressure to act

Reps. Ted Lieu and Jay Obernolte introduced the American Leadership in AI Act, a bipartisan package that pulls together more than 20 House AI Task Force recommendations. The bill focuses on areas where there is real agreement: AI standards and testing, the National Artificial Intelligence Research resourcing, federal procurement, workforce impacts, small business adoption, and penalties for AI-enabled fraud and deepfakes. The bill does not resolve the harder question: whether federal law will preempt the growing patchwork of state AI rules.

Obernolte is expected to release a broader follow-on bill aligned with the White House framework, which calls for a national AI standard that would override many state AI laws while preserving some generally applicable state protections for children, consumers, and fraud. But efforts to build bipartisan consensus suffered a setback last week. Rep. Sam Liccardo, a Silicon Valley Democrat viewed as a potential bridge-builder, has signaled he cannot support broad preemption unless it is paired with stronger federal safety conditions.

Meanwhile, the House Foreign Affairs Committee advanced the MATCH Act as part of a broader semiconductor export-control package designed to limit China’s access to the tools needed to make advanced chips, though some of these proposals face opposition from the White House and broader tech industry.

Why it matters: For startups building with or on frontier models, preemption is not an abstract federalism debate. It determines whether companies can scale under one national rulebook or must comply with different rules across California, Colorado, Texas, New York, and other states considering their own rules. But the tradeoff is becoming clearer: Republicans and the White House want preemption; Democrats are likely to demand baseline safety, privacy, and cybersecurity standards in return.

Meanwhile, two developments made the case for congressional action more urgent—and more complicated simultaneously. OSTP Director Michael Kratsios issued a memo warning that foreign entities, principally based in China, are running industrial-scale campaigns to distill U.S. frontier AI models using proxy accounts and jailbreaking techniques. At the same time, reports of unauthorized access to Anthropic’s restricted Claude Mythos Preview model through a third-party vendor environment are giving lawmakers a concrete example of the security risks posed by powerful dual-use models—and bolstering the arguments for stronger safety standards.

Bottom line: Congress is converging around the easier pieces of AI policy: standards, research infrastructure, procurement, fraud, and deepfakes. But there is not a clear path forward on a national standard at this point. Until lawmakers can agree on the trade between preemption and safety floors, startups will continue facing a fragmented compliance landscape, and federal AI policy will remain more a collection of pillars than a coherent framework.

Federal data privacy bill gets a reboot

House Financial Services and Energy & Commerce Republicans introduced a data privacy package: the GUARD Financial Data Act for financial institutions and the SECURE Data Act for nonfinancial companies. The coordinated two-bill framework is designed to establish a single national consumer data privacy standard with core requirements aimed at limiting the collection of consumer data, providing consumers the right to access and control their data, and requiring opt-in consent for sensitive data. Importantly, these bills would create a national standard that preempts the current state law patchwork.

Why it matters: A single federal standard would reduce compliance complexity, particularly for startups and fintechs navigating a growing state-law patchwork. The two-bill structure is designed to solve a problem that has sunk prior privacy efforts: jurisdictional fights and overlapping rules for companies operating across sectors. While alignment between the committees of jurisdiction provides momentum, the politics remain hard. The Republican-led package currently lacks Democratic support and is already drawing criticism over state-law preemption and the absence of a private right of action.

Quick hits

• Clash over Trump family businesses entangles Senate crypto bill. Hopes for an April markup of the Senate’s digital asset market structure bill have shifted to May, leaving limited runway for floor consideration before midterm election dynamics take over. While stablecoin yield has been the central sticking point for months, ethics is re-emerging as a flashpoint and will likely be the main issue standing between CLARITY and the president’s desk. Democrats are pushing for restrictions on how executive branch officials can sponsor, endorse, or financially benefit from digital assets, and Republican Sen. Thom Tillis has warned that ethics provisions are a condition of his support as well.

• Senate panel to vote on Wednesday on advancing Fed chair Warsh’s nomination. The Senate Banking Committee is set to vote Wednesday on advancing Kevin Warsh, putting his nomination on a glidepath to the full Senate just weeks before Fed Chair Jay Powell’s term ends. After the DOJ dropped its investigation into Powell, Tillis announced he would support Warsh, who is expected to advance along party lines. If the committee advances the nomination, expect a Senate floor vote after recess in mid-May.

• Prediction markets under pressure to crack down on rogue bettors and stop insider trading. The CFTC brought its first-ever insider trading enforcement action involving event contracts alongside DOJ criminal charges against a U.S. Army soldier who allegedly used classified intelligence about the Maduro capture operation to place Polymarket bets and generate more than $400,000 in profits. The case follows Kalshi’s recent decision to fine and suspend three congressional candidates for betting on their own races, underscoring the market-integrity problem that exists where candidates, staff, public officials, and other insiders may have nonpublic information about the outcomes being traded. Congress was already considering whether public officials, candidates, and staff should be restricted from trading event contracts, and the case is likely to accelerate debate over whether existing fraud authorities are enough or whether lawmakers need to create a clearer statutory framework for prediction-market insider trading.

• California billionaire tax has signatures needed for ballot, backers say. A union-backed California wealth tax is moving closer to the November ballot after collecting more than 1.5 million signatures, nearly double the roughly 875,000 required. The California Billionaire Tax Act would impose a one-time 5% tax on the net worth of California residents with more than $1 billion in assets. The proposal sets up a major fight over whether states can tax unrealized wealth without driving capital, companies, and high-net-worth residents elsewhere. Supporters argue the tax is needed to offset health care funding cuts, while opponents warn it would drive business out of the state and reduce future income tax revenue. For the innovation economy, the biggest questions are practical as much as political: how California would value illiquid private company shares, how founders and investors would respond, and whether other states—and the federal government in future administrations—would replicate the model if approved. 

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