Trends in SEC Enforcement: 2Q22 Statistics and Beyond, Part IV
This is the fourth and concluding segment of a series analyzing trends in Commission enforcement actions filed during the second quarter of 2022. Part I, published on Wednesday, August 24, 2022 (here), found that 101 enforcement actions had been filed during the quarter and that there were five key areas of focus during the period: Offering fraud, transfer agents, manipulation and insider trading. Part II provided examples of the cases in the five areas of concentration (here). The third segment of the series featured examples of significant cases filed during the period which are not included in one of the five groups discussed in Part III (here).
Filing 101 new enforcement actions in the second quarter, and 154 for the first half of 2022, as the pandemic continued and the staff remained cabined at home is a significant achievement. If the agency continues to file new actions at either the rate achieved during the quarter or the blended rate for the first half of the year, it should file 300 or more new enforcement cases this year. While there have been years during which more cases may have been initiated, none of those periods had the headwinds the agency has faced in recent times.
What is perhaps more important than the total number of actions initiated is the variety. As noted above, the percentage of the total number of cases filed in an area as a function of the total for the period failed to reach 10% for even the largest groups. That contrasts sharply with other periods where frequently the percentage represent a large segment of the total number of cases filed.
The low percentages are a reflection of the large variety of cases filed during the second quarter. For example, the cases listed under the heading Other Significant Cases in Part III of this series identifies ten different areas. Those include cases centered on a sham tender offer, false statements, complex products, deceptive trading, muni bonds and the first case based on Regulation BI.
The variety of cases is another significant achievement for enforcement. One of the keys to an effective program is leveraging resources. From inception enforcement has always been woefully underfunded compared to the size of the policing job it has in the market place. It is for this reason that a focus on gatekeepers, for example, has long been important since it effectively deputizes (or tries to) market professionals as enforcement officials thereby multiplying the size of the division. Thus, throughout the history of the division, its leaders have typically focused on using this and other approaches to leverage scarce resources.
How the Division of Enforcement achieved the broad pattern of cases reflected in the second quarter stats is unclear. It may have resulted from what seems to be an increasing use of data analytics. The agency has over the last several years focused in part on developing its capabilities in this area. This is reflected in the release published earlier this year announcing the filing of three new insider trading cases based on data analytics. While no explanation was offered to support or explain how data analytics aided the underlying investigation, it appears to be a first.
The key question going forward will be if the Commission can replicate or improve the results reflected in the second quarter results. If enforcement can continue to bring a significant number of cases in a wide variety of areas as in the second quarter of this year, it should greatly enhance the effectiveness of enforcement and the overall program.