SEC Enforcement: 4Q21 (Part I)
There is no doubt that 2021 continued to be dominated by the pandemic. The year did offer, however, the promise of mitigation from the inoculations. By year end in fact there was improvement for many and at least a partial return to normal activities. At the same time, the emergence of a new and highly contagious variant dashed hopes for an end to the battle against the virus now.
SEC enforcement continued to struggle with the pandemic. The virus continued to curtail procedures such as taking testimony. At the same time, the revolving door characterized much of the action at the Division Director’s office through the first three quarters of the calendar year adding to the difficulties. Yet as the fourth quarter moved forward the new Director was in charge and beginning to implement plans for the Division’s program. Remarks were made about a tough new enforcement program, for example, the return of demands for admissions in select cases and a new focus on “gatekeepers” as if the decades old idea was just discovered.
Overall, 2021 was a difficult year for the program. Yet as the fourth calendar quarter of the year moved forward, it became clear that it differed in many ways from the prior three, suggesting perhaps a new approach. Topics such as crypto and the environment continue to be discussed. No single focus seemed to emerge however. At first it appeared that the pattern of the first three quarters might continue. That pattern suggested a very broad, diverse approach to initiating new actions similar in some ways to the “broken windows” approach of several years ago — every and any violation gets turned into a case to emulate the “cop on the beat” appearance.
As the fourth quarter moved to a close however a new and different pattern emerged, one that might be called “back to the future,” a kind of a return to the past. An analysis of the most significant categories of cases filed in 4Q21, viewed in the context of the overall output of filings for the year, suggests that the enforcement program not repeat “broken windows” as earlier patterns suggested. Rather, it will center on traditional enforcement areas – offering fraud, investment advisers, insider trading and market manipulation.
Everyone from the senior staff in the Division to private practitioners and academics cautions that statistics do not tell the story of SEC Enforcement. True. But, everyone talks about them anyway. To be sure, the numbers do not tell the story – but they make a contribution in the form of sketching trends over time for those who analyze the patterns in the filings. That assessment, in turn, aids risk an analysis and compliance.
During the fourth quarter of the calendar year the Division filed 48 new enforcement actions. While the categories of cases that emerged are similar to those from other categories, there are significant differences. The table below depicts the largest categories.
Category — Percentage of total
Offering fraud actions 27%
Investment advisers 16%
Insider trading 12.5%
Corporate/financial fraud 10.4%
The categories listed above reflect to some extent those from earlier periods. Cases centered on offering frauds and investment advisers are long time favorites of the Division as are insider trading actions. In contrast, cases centered on corporate financial and disclosure issues, a traditional focus for the division, have not been key areas in recent year despite repeated efforts to return to this traditional area.
If fourth quarter statistics are examined more closely by moving past the top four categories a different pattern emerges. The next two categories are manipulation and manipulative trading cases and those centered on misappropriation. During 4Q21 each category represents over 8% of the total filings for the period. When these two areas of concentration are added to the others listed above, what emerges is a focus on very traditional Enforcement areas rather that the extremely diverse approach suggested by the results from earlier quarters. That approach would be consistent with a focus on gatekeepers and an emphasis on effective remedies as discussed by the Division Director shortly after taking office – in essence, back to the future with a new emphasis on remedies and admissions.
Next: Cases illustrative of the largest categories set-forth above will be detailed along with select other filing that help illustrate the approach being used by the Division of Enforcement.