Trends in SEC Enforcement: 2Q22 Statistics and Beyond
Issues such as the never-ending pandemic continue to impact back to the office for all, including the Commission’s Enforcement Division. To date agency staff continue to work from home. Testimony continues to be taken largely on Webex rather than in person. And, soon the impact of the impending move of the Commission’s Head Quarters to New York Avenue in North East Washington may begin to impact operations.
Nevertheless, Enforcement continues to add to its capabilities; more positions were added that are dedicated to crypto assets; the use of data analytics was expanded as evidenced by a group of insider trading cases uncovered with data analytics. The statistics cited below, and the cases discussed, reflect an Enforcement program that is continuing to expand despite limitation.
This report is dividend int four sections: 1) Statistics tabulating the numbers of cases filed; during the quarter; 2) The Cases — examples of actions filed in each of the largest groupings of actions filed during the period; 3) Other significant cases illustrating the reach of the enforcement program; and 4) The Conclusion – an analyze emerging from the case filings, suggesting the future path of SEC Enforcement.
II. The Statistics
In the second quarter of 2022 the Commission filed 101 new enforcement actions, excluding matters that are based on Section 12j, tag along and defaults. The actions filed were primarily civil injunctive cases. This means that 154 new enforcement cases have been filed this year – 53 in the first quarter and 101 in the second.
The cases initiated in the second quarter were primarily civil injunctive actions. Specifically, 61 cases were filed in federal court while 41 new administrative proceedings were initiated. The largest number of cases were filed in June 2022. In that month 53 new actions were initiated. That compares to 26 in April and 22 in May. If new cases are filed over the second halve of the year at the same rate as in the first have or at the rate in second quarter, over 300 new enforcement actions will be initiated in 2022.
In contrast, in the second quarter of 2021 the agency filed new cases at a significantly slower rated. During that period only 75 new enforcement cases. That number significantly eclipsed the 48 new matters filed during the first quarter of 2021. Yet overall only 123 new enforcement cases were filed during the first half of 2021, less than the 154 actions filed in the first half of 2022.
The cases initiated during the second quarter were largely concentrated in five areas:
1) Offering fraud 8.9%
2) Transfer agents 6.9%
3) Manipulation 6.9%
4) Corporate/financial 4.9%
5) Insider trading 3.9%
Offering frauds is a category of cases that typically is one of the largest. Transfer agents is the result of a focus on transfer agent rules — all of the cases were filed on the same day as shown below. Market manipulation and insider trading are, like offering fraud cases, typical focal points for enforcement. Perhaps the only stand out category in the second quarter is corporate/financial fraud. While once a focal point of Commission enforcement, in recent years it has not been a large category of cases despite repeated efforts by the agency to focus in the area.
In contrast, the largest groups of cases initiated 1Q22 were:
1) Investment advisers 18.8%
2) Insider trading 13.2%
3) Offering frauds 13.2%
4) Corporate/financial 7.5%
The categories for 1Q2021 were:
1) Misrepresentations 27%
2) Offering frauds 22%
3) Investment advisers 14%
4) Unregistered brokers 8%
The largest difference among the groups of cases filed in the first and second quarter of this year is the complete absence of cases involving investment advisers in the second quarter. Investment advisers has long been one of the largest categories of cases each quarter and each year as reflected in the 1Q22 and 1Q21 statistics detailed above.
Finally, the difference in the percentage size of the leading categories cited above is significant. None of the leading categories of cases in 2Q22 equals or exceeds 10% of the total number of cases filed during the period. This contrasts sharply with the results from 1Q22 and 2Q21. For those periods virtually all of the leading categories exceeds 10% of the total number of cases.
The percentage differences for the groups – all under 10% of the total for 2Q22 and virtually all above that percentage for the other periods — reflects the breath of cases filed in the second quarter of 2022, particularly given the large number of actions initiated during the period. Stated differently, in the second quarter of this year Enforcement initiated a significantly wider variety of actions than in other periods. This means that the path of the Division is broader and less predictable that in earlier periods when the focus was “back to the future” enforcement – largely on traditional areas. This broader focus is reflected in the sample cases discussed below under the heading of “Other significant cases.”
Next: Key Cases in Each Major Category