SEC Trends: More Enforcement Actions, More Administrative Proceedings, Less Sanctions
SEC enforcement is brining more actions, more administrative proceedings but obtaining lower amounts of penalties and disgorgement, according to a recent report by Cornerstone Research. SEC Enforcement Activity Against Public Company Defendants, Fiscal Years 2010 — 2015 (here).
The number of SEC enforcement actions is increasing, focused on disclosure and FCPA violations, according to the Report. Over the last five fiscal years the number of enforcement actions brought by the agency has significantly increased. For example, in fiscal 2010 there were 681 actions filed, while there were 735 brought the next year. By 2014 there were 755 actions filed followed by 807 last year. During the same period the number of enforcement actions brought against public company defendants remained roughly constant, with 33 such actions brought in 2010 and 2015.
The increase in the overall number of SEC enforcement actions brought last year was driven by an increase in number of independent enforcement actions, compared to follow-on administrative proceedings and delinquent filing actions. In fiscal 2015 there 507 independent enforcement actions filed which is a record. That compares to a range of 318 to 445 independent actions for the fiscal years 2005 to 2012. At the same time the number of follow-on actions declined.
Actions against public company defendants focused largely on reporting and disclosure questions and FCPA issues. In 2015 52% of the actions against public companies involved reporting and disclosure questions while 33% centered on FCPA issues. For the period 2010 to 2014, on average, 57% of the cases against public companies involved reporting and disclosure questions while 33% concerned the FCPA.
Venue selection is one of the key topics of discussion regarding the SEC. In recent months a bevy of actions have been brought against the SEC concerning the selection of venue. The statistics in the Report chart the shift. For the period 2010 through 2013 over 65% of the actions against public companies were brought in federal court. Thus, in fiscal year 2010 only 21% of the actions were brought as administrative proceeding while in fiscal year 2011 it was 34%, 2012 24% and 2013 35%.
Fiscal years 2014 and 2015 represent a dramatic shift. In 2014 74% of the actions against public companies were bought as administrative proceedings while only 26% were filed in federal court. The shift continued the next year with 76% of those actions being brought as administrative proceedings and 24% as federal court actions.
The fact that most public companies settle actions with the SEC is a well established. At the same time venue selection may be having in impact. Last year 82% of the actions brought against public companies were settled at the time of filing. That is consistent with the fact that 85% of those actions were settled on filing in 2014 and 81% in 2013.
The trend of filed at the time of settlement seems to shift with venue however. In 2015 96% of the actions filed against public companies as administrative proceedings were settled at the time the action was instituted. That is higher than the 88% in 2014 but less than the 100% recorded in 2013 and 2012.
In contract, in 2015 only 38% of the enforcement actions filed by the SEC against public companies in federal court were settled at the time of filing. The prior year it was 78% and in 2013 71%. While it is clear that there is a significant increase in the number of actions against public companies being brought as administrative proceedings, the reason that virtually all of those cases are settled at the time of filing is an open question – did the venue selection drive the settlement, the settlement drive the venue selection or was venue selection only a matter of convenience for the agency as some officials have suggested?
Finally, the total monetary penalties and disgorgement imposed on public companies last year not only declined compared with the two prior years, but is below the five year median. Last year $574 million in penalties and disgorgement resulted for SEC enforcement actions. That is down significantly compared to the prior year’s $1,254 billion and 2013 when the amount was $739 million. The amount of disgorgement and penalties obtained by the Commission last year was also below the median of $698 million for the period. At the same time it is questionable if disgorgement — which is ill-gotten gains — should be lumped together with penalties — a sanction — when measuring enforcement performance.