Trends In SEC Enforcement 1Q23, Conclusion
Trends In SEC Enforcement 1Q23, Conclusion
Background: This is the concluding segment of a four-part series on trends in SEC enforcement during the first quarter of 2023. The first part of the series was published on Tuesday August 22, 2023 (here). It provided an overview of the period and compared the basic statistics for the quarter to those generated during similar periods. The second part of the series was published on Thursday, August 17, 2023 (here). It provided examples of actions filed during the first quarter of those cases filed which were in one of the four major categories of cases identified in the first part of the series. The third part was published on Tuesday, August 22, 2023 (here). It provided examples of other significant cases filed during the period.
Conclusion: A key question regarding the enforcement program is always effectiveness – is the program halting wrongful conduct and helping deter not just the specific conduct but other wrongful actions in the future. Ultimately the program is the guardian of all involved with the nation’s capital markets and the markets. The task is critical. At the same time it is in some ways near impossible given the size, complexity and continued growth of the markets.
To evaluate the results of the period this series focused initially on numbers and statistics. Those metrics cannot and do not tell the entire story. Nevertheless, the numbers are important. In the first quarter of 2023 they do, for example, suggest an aggressive program. During that period 80 new enforcement actions filed. That far exceeds the 53 actions filed in the first quarter of 2022 and the 48 filed during the same period in 2021.
A second statistic that gives some indication about the overall impact of the program during the period is concentration. Stated differently, when evaluating the enforcement program, a key question is if a variety of cases are being filed or are they focused in a handful of areas. The former would at least suggest that the program was geared to impact the overall market while the latter would imply that the program may have had a lesser impact.
In the first quarter of 2023 the largest category of cases was those centered on an offering fraud. Those cases represented about 12% of the 80 cases filed during the period. The other largest categories of cases were all in single digits. Those statistics at least suggest that the majority of the cases filed during the period were scattered among a number of areas that potentially could impact a variety of market sectors.
Consideration of the statistics from 1Q22 and 1Q 21 bolsters this conclusion. During 1Q22 offering fraud actions also constituted the largest group of cases. Those cases only represented 8.9% of the 53 actions filed during period. In 1Q21, when only 48 offering, offering fraud actions tied as the largest group of cases with those involving misrepresentations at 27%. This means that about 57% of the cases brought in 1Q21 were based on either an offering fraud or a misrepresentation. Clearly, there was significant concentration during 1Q21 compared to subsequent periods. This at least suggests that the program in 1Q23 and 1Q 22 was having a broader impact on the market.
While the numbers generated by the enforcement program provide a glimpse of its impact, ultimately it is the cases that are critical. It is difficult, of course, to quantify or even evaluate the impact of filing a variety of cases. At the same time filing a variety of actions should suggest greater market impact. This is certainly the case in 1Q23. The point is well illustrated by the examples of cases provided in this series. Those examples represent cases involving conflicts, false statements, disclosure, corporate controls, touting, Rule 105, perks, beneficial ownership, cybersecurity, municipal offerings, non-GAAP financial metrics and manipulation.
While the variety of cases could in fact be near endless given the complexity of the federal securities laws, the examples presented here represent a number of different types of issues that cut across the topics covered by the statutes and rules. This broad reach more than suggests a program that is impacting a variety of market segments. That suggestion is fully supported by the statistics for the period discussed above. Overall, the statistics and the cases filed make it apparent that SEC enforcement is impacting a broad portion of the markets. That impact helps ensure that the U.S. capital markets continue to be the broadest and best in the world.