The SEC announced that for its fiscal year that ended in September, it filed a record 755 enforcement actions covering a wide range of misconduct, and obtained orders totaling $4.16 billion in disgorgement and penalties. By contrast, in FY 2013, the SEC filed 686 enforcement actions and obtained orders totaling $3.4 billion in disgorgement and penalties. In FY 2012, the SEC filed 734 enforcement actions and obtained orders totaling $3.1 billion in disgorgement and penalties.
The SEC cited new investigative approaches and the innovative use of data and analytical tools for the record number of enforcement cases.
Its enforcement actions also included a number of first-ever cases, including actions involving the “pay-to-play” rule for investment advisers, an action for whistleblower retaliation, and an action alleging fraud in the allocation of expenses to funds by a private equity adviser.
“Aggressive enforcement against wrongdoers who harm investors and threaten our financial markets remains a top priority, and we brought and will continue to bring creative and important enforcement actions across a broad range of the securities markets,” said SEC Chair Mary Jo White. “The innovative use of technology – enhanced use of data and quantitative analysis – was instrumental in detecting misconduct and contributed to the Enforcement Division’s success in bringing quality actions that resulted in stiff monetary sanctions.”
“Time and again this past year, the Division’s staff applied its tremendous energy and talent, uncovered misconduct, and held accountable those who were responsible for wrongdoing,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “I am proud of our excellent record of success and look forward to another year filled with high-impact enforcement actions.”
The full press release can be found here.
It should be clear now that we are in an environment where regulators will aggressively pursue firms and individuals who do not take compliance seriously.
The SEC’s announcement of a record number of enforcement cases is consistent with a broader trend of increased focus on enforcement by the SEC. The SEC Chair is a former prosecutor who was the U.S. Attorney for the Southern District of New York who has publicly stated that enforcement would be a priority. She has advocated the “broken windows” approach, which emphasizes that even minor violations will be pursued aggressively by the SEC. The SEC’s head of Enforcement is also a former prosecutor who was a deputy of Chair White. This is Chair White’s first full year as SEC Chair, so we can expect continued focus on enforcement.
The prosecutorial backgrounds of some of the top SEC officials has also manifested in other initiatives and trends:
- The SEC has stated that it will pursue more individuals, not just firms
- The SEC has also stated it will hold accountable gatekeepers such as internal compliance officers, and accountants and law firms
- The SEC is moving towards bringing cases in administrative law proceedings where it has lost only one case in the past three years, rather than in federal courts, where it has won about two out of every three cases. See WSJ Blog.
- Finally, the SEC is now requiring violators in certain cases to admit to wrongdoing (as opposed to its prior approach where defendants “neither admitted nor denied guilt”), which creates potential criminal and private civil liability; may trigger an insurance coverage exclusion for bad conduct; and create potential “bad actor” violations which may result in a firm being banned from raising capital from investors
Taken together, it should be clear to investment advisers and their personnel that even though they mean to follow the law and not engage in illegal conduct, we are now operating in a regulatory climate that is not forgiving of excuses and minor oversights.