“While numbers are a small part of the story, in the last three fiscal years, we have brought record numbers of enforcement actions, obtained unprecedented monetary remedies in the billions of dollars, and returned hundreds of millions of dollars to harmed investors.”
Mary Jo White, SEC Chair, in recent talk at NYU
Are numbers a small part of the story? As Mary Jo White is stepping down from her post in January 2017, after almost four years at the SEC, now is a good time to look at the numbers and at the story they are telling. In a new report (PDF: 664 KB), the NYU Pollack Center for Law & Business, in collaboration with Cornerstone Research, investigated recent trends in enforcement via the Securities Enforcement Empirical Database (SEED).
Increase in SEC Actions against Public Company Related Defendants Surpasses Increase in Overall Enforcement Actions
On October 11, 2016, the SEC announced that it had filed a record total of 868 actions in FY 2016, including a record 548 independent enforcement actions. SEED currently provides data for SEC actions initiated against public companies traded on major U.S. exchanges and their subsidiaries (public company–related defendants). We define public companies as companies with security prices that are tracked by the Center for Research in Security Prices. The number of actions against public company–related defendants continued its upward trajectory in FY 2016 following a dramatic increase in FY 2015. In fact, the increase in SEC actions against public company–related defendants from FY 2013 through FY 2016 was 130 percent as compared to a mere 61 percent increase in all independent or stand-alone enforcement actions.
“Issuer Reporting and Disclosure” Claims Remained the Most Frequent Type of Allegation in FY 2016
The SEC has also announced that it “continue[s] to prioritize issuer reporting and discloser matters in fiscal year 2016.” Consistent with this announcement, Issuer Reporting and Disclosure has been the top allegation type in public company-related actions for five out of the past seven fiscal years. In addition, accounting for 26% of claims, issuer reporting and disclosure has remained the most frequent type of allegation against public company-related defendants in FY 2016. FCPA allegations made up the largest percentage in FY 2011 whereas Municipal Securities/Public Pensions allegations were the largest percentage in FY 2015. In FY 2016, the SEC elevated its focus on Investment Advisor/Investment Companies violations. The actions it brought against these public company-related defendants and in FY 2016 exceeded the combined total for the prior three fiscal years.
Defendant cooperation boosts with Commission’s use of administrative proceedings
The SEC has been acknowledging cooperation by defendants since 2001. However, in January 2010, it announced a formal cooperation initiative. The Commission considers four broad factors when negotiating a settlement with a cooperating defendant: “self-policing, self-reporting, remediation, and cooperation.” SEED measures the fourth factor, cooperation, based on whether the SEC explicitly mentions “cooperation” in the settlement announcement.
Stated cooperation by public-related defendants has more than doubled since the announcement of the formal cooperation initiative. Public company–related defendants cooperated in 55 percent of settlements with the SEC in fiscal year 2016. Furthermore, cooperation was noted more frequently in administrative proceedings than in civil actions. Over the past three fiscal years, 56% of all administrative proceedings involved cooperating defendants. In comparison, only 11% of all civil actions involved cooperating defendants.
Eight out of the Top Ten Monetary Settlements Involved Financial Institutions
The top ten monetary settlements in public company–related actions ranged from $200 million to $550 million, and totaled over $3.4 billion. Four of these occurred in administrative proceedings, while six were in civil actions. The largest monetary SEC settlement since FY 2010 was $550 million by a subsidiary of a public financial services company. The second to largest monetary settlement was $525 million by a public oil and gas company in FY 2013.
What next? According to Prof. Stephen Choi, “it will be interesting to see what impact, if any, the appointment of a new chair by the Trump administration will have on SEC enforcement. While it is not prudent to speculate on the exact impact at this time, much will depend on the new appointee’s priorities and policies. The trends we see in the next two years of SEED data will help to tell that story.”
As noted above, the research discussed in this post was conducted through SEED. SEED is an online resource that provides data on SEC actions filed against defendants that are public companies traded on major U.S. exchanges and their subsidiaries.
Anat Carmy Wiechman is the Associate Director and a past Wagner Fellow at the Pollack Center for Law & Business at NYU School of Law.
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