SEC Enforcement Activity Declines In an Era of Uncertainty

It is axiomatic that markets hate uncertainty. So apparently do market regulators. A report on SEC enforcement activity shows a significant decrease in the number of enforcement actions brought in the first half of fiscal 2017. The Report is a joint effort of the New York University Pollack Center for Law & Business and Cornerstone Research based on their jointly operated Securities Enforcement Empirical Database or SEED (here).

During the FY 2017 to date the SEC has filed a total of 334 enforcement actions (excluding tag-alongs), according to the Report. This contrasts with the 372 enforcement actions filed during the comparable period one year earlier. The decline also contrasts with the trend in filing enforcement actions since at least 2013. In that year 279 enforcement actions were brought while the next year there were 310 enforcement actions filed followed by 372 in the first half of 2015. The statistics also reflect a decline in the number of insider trading and FCPA cases initiated during the same period, consistent with the overall trend.

In contrast, there were increases in the number of enforcement actions filed concerning broker-dealers, issuer reporting and disclosures and those involving securities offerings. Those increases were not sufficient to offset declines in other key areas however.

The report attributes the decline to a number of factors. Those include the uncertainty regarding SEC leadership as well as the new administration. Presently, the Commission has an Acting Chairman and one additional Commissioner with three positions vacant. No hearing date has been set for the Administration’s selection to be the next SEC Chairman, Jay Clayton. In addition, Commissioner Stein’s term expires in June which could leave the agency with only one Commissioner if Mr. Clayton is not confirmed by that date. These uncertainties are undoubtedly bolstered by the vacancies in many senior staff positions.