Trends In SEC Enforcement

In the last two years SEC Enforcement has filed record numbers of cases. This is a significant accomplishment. A critical question about those statistics, however, is the composition of the case load. Stated differently, in what areas is the newly reorganized Division focusing its resources?

The case composition from last year is reflected in the following table:


Percentage (rounded)

Investment advisers




Delinquent filings


Securities offerings


Financial fraud/issuer disclosure


Insider trading


Market manipulation






The statistics, reported by Cornerstone Research in their latest report on securities litigation (here), are based on categories selected by the SEC staff.

A comparison of the composition of the SEC’s case load on a yearly basis since the passage of the Sarbanes-Oxley Act in 2002 is instructive. Last year the largest category of cases brought were those involving investment advisers, followed closely by actions against broker-dealers. An analysis of the Enforcement Division’s caseload over time shows that this represents a significant increase in the number of cases brought against investment advisers while the percentages involving broker-dealers has remained about the same.

In 2003 only 11% of the Commission’s cases involved investment advisers, or about half the number on a percentage basis as in 2012. While the percentage fluctuates each year, in the post SOX world the number of cases in this category did not significantly increase until about 2010 when it reached 17% followed by 20% in 2011 and again in 2012. At the same time the percentage of actions brought involving broker-dealers has remained in fairly consistent range of 20% in 2003 to about 18% last year. The significant uptick in investment adviser cases may be a function of not just the enhanced inspection program but the use of risk metrics in assessing hedge funds and the insider trading program which, in part also focuses on hedge funds.

The third largest category of actions last year was delinquent filings. The percentage of these cases has been relatively constant since it was first reported in 2007. At the same time the percentage of manipulation cases, many of which may involve shell companies and micro-cap fraud, has declined slightly in recent years. In 2003 these cases represented 16% of the Commission’s actions. That figure increased to a high of 21% in 2009 and 2010 but declined to just 12% in 2012. Those percentages seem contrary to the notion that these were areas of focus for the Division. The decline may, however, to some extent represent the success of the delinquent filing program.

One of the larger categories of cases last year was offering fraud. Interestingly, this category has actually declined in the last two years from highs of 21% 2009 and 2010 immediately following the Madoff scandal. Presumably this category contains a number of Ponzi scheme actions which have become a staple of enforcement in recent years.

In contrast, financial fraud, long a key area for the Division, appears to be on the wane. In 2003 29% of the cases brought by the SEC were in this category, almost triple on a percentage basis the number brought last year. Indeed, financial fraud cases continued to be the largest category of actions brought by the SEC until the last two years when the numbers dropped dramatically: 2003 – 29%; 2004 – 20%; 2005 – 29%; 2006 – 24%; 2007 – 33%; 2008 – 23%; 2009 – 22%; 2010 – 19%; 2011 – 12%; and 2012 – 11%. A number of factors might account for this change including the effectiveness of the SOX reforms. At the same time corporate financial fraud actions are complex and difficult to develop. In the sweeping Enforcement Division reforms and the zeal for speed this area may not be a key focus.

Finally, two areas of emphasis which receive a substantial amount of commentary in the press represent only a small part of the Division’s case load. Insider trading, perhaps the Division’s highest profile area, represented just less than 8% of its case load last year. That percentage is consistent with other years in the post-SOX era.

Similarly, FCPA actions, which are investigated by specialized groups based in various SEC offices, represented only 2% of the Division’s overall case load, down 1% from the prior year. The consistency of the results year to year appears to echo those of the insider trading program.

There is little doubt that following the reorganization of the Enforcement Division more cases have been brought. While insider trading and the FCPA continue to garner significant amounts of press, it is actions against investment advisers and probably hedge funds which seem to be the focus of the reorganized program. On the other hand traditional areas such as financial fraud may be receiving less emphasis.

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