SEC Enforcement 3Q22 – A “Cop on Every Corner” Presence in the Market – Part I
While the pandemic continues, relegating Washington D.C. to a shadow of what the city once was like, it is not hindering the filing of new cases by the Commission. The SEC Headquarters office may be largely empty; Chair Gensler may give most of his interviews from his home; Investigative testimony may be on Webex, not in person. But Commission enforcement cases are being filed.
Despite the limitations the agency continues to develop new rule proposals as the Enforcement Division files new cases and litigates others seemingly drawn from every corner of the markets. The statistics discussed below are a reflection of an active and far-reaching program that continues to expand its reach. This was particularly evident in the last week of the government fiscal year when 45 new enforcement actions were filed.
This report, which reviews the enforcement work of the Commission during the third quarter of the calendar year or fourth quarter of the government fiscal year, 2022 is divided into four sections: 1) Statistics tabulating the number of cases filed; 2) Examples of the cases filed in each of the leading categories; 3) A selection of other, significant actions initiated during the quarter, a good illustration of the reach of the enforcement program; and 4) The Conclusion.
II. The Statistics
In the third quarter of 2022 the Commission filed 202 new enforcement actions, excluding matters that are based on Section 12j, tag along and defaults. The actions were primarily civil injunctive cases. Specifically 129 were filed in federal district court while 73 were initiated as administrative proceedings. This means that in the first three quarters of 2022 the agency has filed a total of 353 cases: 53 in the first quarter, 101 in the second and 202 in the most recently completed period.
In contrast, during the first three quarters of 2021 a total of 267 new actions were filed. Specifically, in the first quarter of that year 48 actions were filed while 75 were initiated in the second quarter of 2022 and 144 in the third.
The mix of cases filed in the third quarter of 2022 is not significantly different than in the earlier two quarters of the year, however. During the third quarter the largest groups of cases, expressed as a percentage of the total number of actions filed were:
1) Offering fraud 12%
2) Insider trading 11.3%
3) Investment advisers 6%
4) Financial Fraud 5%
Each category above represents a traditional area of focus for the Enforcement Division. In the first and second quarters of 2022 the key areas of focus were also traditional areas of concentration — investment advisers, insider trading, offering fraud and corporate and financial.
Similarly, in the third quarter of 2021 the focus was also on traditional areas of concentration, although the categories were not identical:
1) Investment advisers 5%
2) Insider trading 4.8%
3) Microcap fraud 4.8%
4) Unregistered brokers 3.4%
The trend of focusing on traditional enforcement areas in the leading categories of cases filed traces back to at least early 2021.
Perhaps the largest difference between 3Q22 and the earlier quarters this year and those in 2021 is the variety of cases initiated by the agency. Those ranged from municipal bonds, Regulation BI, transfer agents, complex products, crypto assets, identity theft and related party transactions to SPACS. The large number of cases filed in 3Q22 is due in part to the variety of areas in which the Division investigated and filed actions. That reach effectively broadened the Division into a “cop on the beat,” covering the large variety of issues involved in the securities market place.
Next: Cases representative of the significant categories listed above.