by T. GormanPosted on Posted in SECActions

Earlier this year the SEC published its enforcement statistics for fiscal 2023 which were discussed in this publication. Early next year we will publish enforcement statistics for calendar year 2023. And, Cornerstone Research and the NYU Pollack Center for Law & Business published a subset of the enforcement statistics for fiscal year 2003 in its publication, SEC Enforcement Activity: Public Companies and Subsidiaries, Fiscal Year 2023 Update (here) and discussed below. Each report typically contains key insights regarding SEC enforcement trends.

The statistics in the Cornerstone – NYU Report focus only on actions for the government fiscal year that involve public companies and their subsidiaries. The statistics compiled provide important insights into the work of the SEC enforcement division. Those statistics can be divided into four areas for discussion.

Filings and claims

In fiscal 2023 the SEC filed 91 enforcement actions against public companies and their subsidiaries. That represented a 34% increase over the prior fiscal year. At least part of the filings resulted from a series of sweeps conducted during the year that ended with 31 actions – about a third of those filed for the period – and a September push to file as the fiscal year drew to a close.

The allegations centered largely on issuer reporting and disclosure questions which were involved in 41 of the 91 cases – the largest number recorded for the Cornerstone – NYU Report. Actions involving broker-dealers made up the second largest group of cases while those centered on investment advisers & investment companies were next.

Sweeps

The sweeps, which are the focus of much of the enforcement activity detailed in the Report, were conducted in several areas:

 –SPAC-related entities – 8 actions

 –Failure to disclose complete information on Form NT – 3 actions

 –Whistleblower Protection Rule – 3 actions

 –Crypto-related – 2 actions

 –Cybersecurity –2 actions

 –ESG – 2 actions

Cooperation

Cooperation is often stressed by Commission officials when discussing enforcement. During the last fiscal year about 69% of the actions surveyed reportedly involved at least one cooperating pubic company or subsidiary. The exact impact of that cooperation can be difficult to ascertain as the following statistics illustrate:

 –Last year there were 70 cooperating defendants

–87% of the cooperating defendants had monetary settlements imposed compared to 94% of the defendants without cooperation

–13% of cooperating defendants had no monetary settlements imposed – about three times the average rate for the period 2014 to 2022

–15 of the cooperating defendants were required to make admissions of guilt

Admissions

In fiscal 2023 sixteen public companies or their subsidiary defendants made an admission of guilt. Fifteen of those actions were brought as part of an ongoing sweep for recordkeeping failures.

Conclusion

The Report provides insight into SEC enforcement involving public companies and their subsidiaries. Enforcement is aggressive as reflected in the 34% increase in these cases. That trend is echoed in the high percentage of cases that had a monetary settlement imposed and the fact that fifteen of the cooperating defendants made admissions, not a typical requirement.

 

Tagged with: ,

by T. GormanPosted on Posted in SECActions

This is the final installment of this series. The first installment focused on statistics for the second quarter of 2023, noting that 46 enforcement actions were filed by the SEC. The second part of the series provided examples of the cases in four largest categories of actions filed during the period – offering frauds, insider trading, manipulation and financial fraud. The third segment presented other cases of note filed during the period.

Neither the number of cases filed during the second quarter of 2023 nor the variety of actions initiated were noteworthy compared to other periods. During periods more that 46 new enforcement actions have been filed during a number of periods as noted earlier in the series. Equally clear is the fact that in some earlier periods the number of new cases initiated were less. Filing 46 new actions falls some place in the middle.

The number of cases filed is not, however, determinative of results. Those can only be evaluated over time and by considering a number of factors. When focusing on one period as here, period the other key metric is the variety of cases filed. During the second quarter not only was the number of cases initiated less that during the same period one year earlier, but those cases that were filed were more heavily concentrated in fewer areas. In contrast, one of the hallmarks of enforcement in recent periods has been the variety of cases initiated during the quarter.

The variety of actions filed in earlier periods helped to sending a clear and unequivocal signal to the market place that virtually anywhere one turned, SEC enforcement was about, monitoring the market and protecting investors. In contrast, the statistics on numbers of cases coupled with a concentration of about 30% in offering frauds for 2Q23 unfortunately sends the wrong signal to the markets and investors, strongly suggesting that the once ubiquitous market cop was not likely to be around and about to ensure investor protection and market integrity.

All of this is not to say there were not bright spots during 2Q23. Enforcement did cover a number of areas such as SARS, perks, municipal offerings and the liquidity rule. Each is an important area.

The agency also continued to focus on crypto assets, another important area given the amount of resources continually flowing into those assets. Perhaps the most significant cases in this respect were SEC v. Sun and SEC v. Bittrex. The former is an action against one of the world’s largest players in the crypto asset area. The latter is an action centered on a trading platform, a critical area of focus in this area given the role the platforms play in the market.

Finally, the key question presented by 2Q23 is its influence. In the future will enforcement continue to focus on only a handful of areas and dimmish the number of cases brought as in 2Q23 or return to the approach used earlier when more cases were filed in a much winder number of areas?

In the future, the Commission, investors and the markets would be well served by a return to the prior approach of large numbers of cases coupled with a far greater variety of areas of focus.

Tagged with: ,