SEC Enforcement: Another Look At Last Fiscal Year

The SEC published its statistics for the last fiscal year in a glossy report centered on a discussion of the new retail/cyber focus of the Enforcement Division. Statistics are not the sole measure of success the agency stated. Select statistics from fiscal 2017 were then unveiled as the Commission argued that exclusive of the cases generated by the Municipal Disclosure program, statistically fiscal 2017 was comparable to the prior year (here).

A new report by Cornerstone Research and the NYU Pollack Center for Law and Business presents a different prospective. SEC Enforcement Activity: Public Companies and Subsidiaries (Nov. 2017) (here). While the numbers in the Cornerstone/NYU report are not directly comparable to those in the SEC Enforcement Report since the former focuses only on public companies and their subsidiaries while the latter reports all enforcement actions, the new report provides interesting insights into the work of the Division and the impact of the change in administration.

The number of new SEC enforcement actions brought involving public companies in the last fiscal year declined by about 33% compared to the prior fiscal year, according to the Cornerstone/NYU report. Specifically, in fiscal 2017 the Division brought 62 actions involving public companies while in fiscal 2016 there were 92 new cases filed and 81 in 2015.

In fiscal 2017, according to the Cornerstone/NYU report, the Enforcement Division was on pace in the first half of the year to match the prior year in terms of the number of cases filed. During the first have of the year 45 enforcement actions were filed. In the second half of fiscal 2017 only 17 cases were brought by the Division. The drop in filings “corresponds with the leadership change at the SEC,” the Report notes.

The composition of the case mix appears overall to have been similar in the last two fiscal years. In fiscal 2017 the top three categories of cases were issuer reporting and disclosure, investment advisers and investment companies, and FCPA actions. Those groupings represented 39%, 21% and 16%, respectively, of the total number of cases brought. In fiscal 2016 26% of the cases involved issuer reporting and disclosure, 21% related to investment advisers and investment companies and 20% were FCPA actions.

A closer examination of the statistics however, again reveals a change that coincides with the advent of Chairman Clayton’s tenure. In the second half of fiscal 2017 the largest grouping of cases brought involved investment advisers and investment companies, not issuer reporting and disclosure. This is consistent with Chairman Clayton’s focus on retail investors. That result is consistent with the stated new focus of the Enforcement Division. Similarly, in the second half of fiscal 2017 the number of FCPA cases dwindled to 2 while in the first half of the year there were 10 anti-corruption actions brought by the Division. While there may be a number of reasons for the decline in FCPA actions, the statistics are also consistent with questions regarding the enforcement commitment of the current administration in this area.

The industry mix of firms involved in SEC enforcement actions also appears to have shifted over the last two fiscal years. In fiscal 2016, 59% of the public company actions involved those in the finance, insurance and real estate sector while manufacturing accounted for about 18% and services 3%. In fiscal 2017 however, only 42% of the cases involved firms in finance, insurance and real estate sectors while the percentage of manufacturing cases jumped to 32% and services 8%.

In fiscal 2017 the Enforcement program obtained settlements totaling $1.2 billion. About 89% of the public company settlements involved monetary penalties. That is comparable to the prior two fiscal years. Again, closer analysis suggests a possible shift. In the first half of fiscal 2017 89% of the settlements had monetary penalties which is comparable to the last two year. In the second half of fiscal 2017 the percentage slid to 78% of the settlements, a drop from the first have of the year.

Cooperation, a key issue for the Division, also appears to have declined in fiscal 2017. In that year about 54% of the settling firms cooperated. That compares to 65% in the prior year and 71% in fiscal 2015. Defendants cooperated most in fiscal 2017 in actions involving FCPA allegations and those in the Municipal Securities/Public Pension cases. The statistics regarding FCPA cases may have been influenced by the pilot cooperation program being offered by the DOJ since Commission actions in this area are typically paralleled by criminal DOJ cases. Similarly the statistics regarding Municipal Securities may have been impacted by the Commission’s Municipal securities self-reporting and cooperation program. Overall the statistics on cooperation raise questions regarding the success of the agency with its cooperation efforts.

Finally, the Report concluded that actions involving public companies with resolutions that were not concurrent with the filing of the complaint were less likely to have monetary settlements. From 2010 through 2017 about 71% of the cases with non-concurrent resolutions had a monetary component compared to 88% of those settled at the time of filing. These statistics again raise questions regarding cooperation in Commission enforcement actions and perhaps the settlement approach and tactics being used by the Division.

Program: The Fourth Annual Dorsey Federal Enforcement Forum will be held on December 6, 2017. There will be panel discussions and presentation on EPA enforcement, SEC enforcement, investment advisers, international sanctions, FinTec, and FBI international corruption investigations, followed by a holiday party. Attend in person, listen on the web or watch a live stream; CLE available. For a detailed program and free registration click here.

Tagged with: , ,