Trends in SEC Enforcement: 2022 – A Cop on Every Corner, Part I
Introduction – an overview of 2022
This article provides a brief overview of 2022 and is the last in a series of analyzing on a quarter basis the enforcement results of the SEC. While 2021 may have been marked, and perhaps hindered by the pandemic, that clearly was not the case in 2022 for SEC Enforcement. To be sure, few people are at the offices of the agency. Even Chair Gensler frequently appears on television from his Baltimore home rather than the Commission’s headquarters office in Washington DC. Testimony continues to be largely taken by remote, although that seems to be drawing to an end.
Nevertheless, the agency filed nearly 500 new enforcement cases in 2022, far more than in recent calendar years, according to our count What is perhaps more interesting is the variety of cases that were filed. While staples such as offering fraud actions and insider trading cases continue to be key, the percentage of those traditional actions of the overall number of enforcement actions filed dwindled last year.
In 2022 the universe of cases can be characterized as a “Cop on Every Corner” as reflected in the wide variety of cases filed. No matter the vantage point one assumes to assess market activity, it it is clear that SEC Enforcement was monitoring the activity. The range of cases filed, aside from traditional staples like offering fraud, insider trading and manipulation, has a broad reach from AML, FCPA, free riding, privacy and touting to SPACs and Reg FD. In many instances that reach may be the result, at least in part, of data analytics – a factor cited by the agency in announcing two new insider trading cases last year. Many observers believe the Commission may have the best data analytics team in Government.
Whatever the predicate for the increased number of enforcement actions and the broad reach of the enforcement program, there is no doubt it is good enforcement. The image of a “Cop on Every Corner” or perhaps more appropriately an SEC Enforcement Official monitoring each nook and cranny of the market place, should give comfort to all investors – the Commission is making the market safer and more efficient for all participants.
Statistics for 4Q22
In the fourth quarter of 2022 a total of 143 new enforcement actions were filed. The majority – 84 –were civil injunctive actions. While the pace of new filings slowed during the beginning of the quarter – a fact undoubtedly attributed to the huge “push” the agency makes every year as the Government fiscal year comes to an end on September 30, over the course of the quarter it increased. The statistics for the period are as follows:
4Q22 – cases filed (expressed as percentage of total)
Offering fraud 13%
Crypto assets 9%
Insider trading 7%
Two points stand out regarding these statistics. First, the four categories listed above reflect the largest groups of case initiated during the quarter. Yet only one of the categories is in double digits – offering frauds which is frequently one of the largest groups of cases for any period. The fact that the percentage of the total for the other three largest groups of cases filed in the fourth quarter is a reflection of the fact that the agency filed a variety of cases during the period which often probed little know corners of the market place. This is consistent with the approach taken by the agency since shortly after Mr. Gensler became Chair of the Commission.
A brief review of the cases cited in subsequent installments of this series confirms this point. During the fourth quarter of 2022 cases brought in areas outside those cited above included touting, financial fraud, free riding, unregistered securities, unregistered brokers and others. This broad reach approach can be very effective in monitoring the market as discussed above.
Second, the fact that crypto assets are the second largest category of cases is significant. While there has been an on-going debate regarding the regulation of those assets, it seems clear that the Commission is not waiting for Congress to act. Rather, the agency added a number of new enforcement positions which focus on crypto assets and is filing significant numbers of cases, a fact consistent with Chair Gensler’s statements that many crypto assets are in fact securities.
These results also undercut claims that the “rules” for determining what crypto assets may be securities are some how unclear. Indeed, most of the crypto asst cases filed are based on Securities Act Section 5 – a statute passed in 1933 – and the Supreme Court’s decision in SEC v. Howey, 328 U.S. 293, a case decided decades ago in 1946. Clearly the statute and the case have each been on the books for years and reviewed, interpreted and construed by untold numbers of courts over the decades. Stated differently, there is plenty of precedent to review and analyze the standards being applied to crypto assets.
Finally, this is the first of four Parts of the article. Section II provides examples of the cases brought in each of the four largest categories cited above; Section III provides examples of other significant cases filed during the quarter (and will be published in two parts because of its length); and Section IV is the Conclusion to the series. Earlier articles in this series analyzing each of th quarters of 2022 can be found at: 1Q22, here; 2Q22, here, and 3Q 22 here.
Next: Examples of cases in each of the largest categories for the quarter