SEC Ends FY19 with $4.3B in Penalties/Disgorgement

In fiscal year 2019 (which runs from October to September), the SEC reported a total of 862 enforcement actions, including 526 “standalone” actions filed in either federal court or as administrative proceedings, which was its highest number of standalone actions since 2016.

The SEC also filed 210 “follow-on” proceedings seeking the barring of individuals based on actions by other authorities or regulators. This number of “follow-on” proceedings matched the prior year’s total, and was about 10% higher than the number of such actions filed in 2016 or 2017.

The majority of cases brought forth in fiscal year 2019 concerned investment advisory and investment company issues (36%), securities offerings (21%) and issuer reporting/accounting and auditing (17%). Additionally, enforcement actions resulted in 595 bars and suspensions of wrongdoers, an increase from fiscal year 2018.

The SEC secured $3.248 billion in disgorgement – a five-year high. In addition, while 2019’s $1.101 billion in penalties was more than $300 million lower than what was ordered in 2018, it nonetheless surpassed the 2017 numbers, and contributed to a total amount of money ordered paid in 2019 (between disgorgement and penalties) that represented another five-year high for the SEC.

Despite these metrics revealing a very solid year for the Enforcement Division, the SEC made it a point to highlight that it likely had to forgo more than $1.1 billion in disgorgement in filed cases as a result of the Supreme Court’s decision in Kokesh vs SEC. The SEC added that “The actual impacts of Kokesh are likely far greater than this number reflects, however, because—since the Kokesh decision—the Division has shifted its resources to those investigations which hold the most promise for returning funds to investors.”

In the Report, the Division listed several initiatives designed to protect retail investors, including:

– launching the Share Class Selection Disclosure Initiative in February 2018, which resulted in the immediate benefit of more than $135 million being ordered returned to harmed investors; and
– establishing the Retail Strategy Task Force to (i) create data-driven techniques to identify harmful retail practices in the securities market and (ii) coordinate efforts within and outside of the SEC concerning retail investor advocacy.

The SEC also highlighted several continuous areas of focus, including:

– coordinating with federal and state criminal authorities to hold wrongdoers accountable and remove bad actors from the markets;
– accelerating the pace of investigations between the time the case was opened to the filing of an enforcement action, which was, on average, just under 24 months in fiscal year 2019;
– rewarding companies for their prompt self-reporting, extensive cooperation, and implementation of remedial measures immediately upon learning of the improper conduct; and
– recognizing the importance of whistleblowers, which led to the SEC awarding 66 whistleblowers approximately $387 million in fiscal year 2019.

The Division also highlighted cyber-related developments, including:

– the creation of a new Cyber Unit to defend against cyber-related threats;
– investigations and recommendations on cases involving distributed ledger technology and digital assets; and
– updating technology to aide in the investigation of unlawful trading and improving the ability to analyze large volumes of data.

In a year in which it lost more than a month due to the government shutdown, the SEC missed no opportunity to tout its accomplishments for the year. Moving in 2020, it will be interesting to see what the SEC does with the perceived benefit of “added time.”

To read the complete Enforcement Division Annual Report – FY19, click here.