by Anat Carmy-Wiechman, Giovanni Patti, Peter Robau
In a new report, the NYU Pollack Center for Law & Business, in collaboration with Cornerstone Research, investigated recent trends in enforcement via the Securities Enforcement Empirical Database (SEED). Below, we highlight some of the key findings.
The SEC Filed 68 Enforcement Actions against Public Companies and Subsidiaries in FY 2022
SEED currently provides data for SEC enforcement actions against public companies and their subsidiaries from October 1, 2009 through the present.[1] According to the report, the SEC brought 68 new actions against public companies and subsidiaries in FY 2022 (which was Chair Gensler’s first full fiscal year), representing a 28% increase from the 53 actions in FY 2021. Compared to other SEC Chairs in their first fiscal years, the 28% increase in Chair Gensler’s first full fiscal year was “higher than the 12% increase for Chair Clayton in FY 2018, but lower than the 38% increase for Chair White in FY 2014.”
“Issuer Reporting and Disclosure” Was the Most Common Allegation Type (38%)
The report notes that “Issuer Reporting and Disclosure continued to be the most common allegation type in FY 2022, accounting for 38% of actions.” The report also points out that “[f]or the first time since FY 2018, Broker Dealer allegations were the second most common in SEED” and that “[t]he number of actions involving Foreign Corrupt Practices Act (FCPA) allegations remained relatively low in 2022 with just six actions filed, compared to an average of 10 from FY 2013 through FY 2021.” Finally, according to the report, “[t]he share of Investment Adviser/Investment Company actions fell from the previous fiscal year, down to 15% of actions filed in FY 2022, the lowest percentage since FY 2015.”
The SEC Brought 88% of Public Companies and Subsidiaries Action as Administrative Proceedings
The report notes that “[d]espite ongoing challenges to the constitutionality of the SEC’s use of ALJs, the SEC continued to bring the majority of actions (88%) as administrative proceedings in FY 2022.” The report also notes that “[t]he vast majority of public company and subsidiary actions (93%) in FY 2022 were filed and settled concurrently” and that there were five actions (all civil actions) that were litigated (i.e., they were not filed and settled concurrently). According to the report, these five litigated civil actions represent “more than the average of three over the prior five fiscal years.”
SEC Settlements: 63% of Defendants Noted Cooperation with the SEC
As described in the report, “[t]he SEC noted cooperation by 63% of public company and subsidiary defendants in FY 2022, consistent with the average of 62% during the prior five fiscal years.” In addition, the report indicates that “[o]f the 75 public company and subsidiary defendants that settled during FY 2022, 97% involved a monetary component, the highest percentage of any fiscal year in SEED.”
SEC Settlements: Monetary Settlements Totaled $2.8 Billion in FY 2022
SEED tracks all monetary settlements imposed by the SEC on all types of defendants (including individuals and other entities) in actions against public companies and subsidiaries. The report indicates that the total amount of monetary settlements in actions against public companies and subsidiaries was $2.8 billion in FY 2022, “$921 million more than in FY 2021 and $321 million
more than in any other fiscal year in SEED.” The report also notes that “[t]he SEC imposed monetary settlements totaling $1.2 billion against public broker-dealer subsidiaries due to recordkeeping failures in FY 2022. Those settlements represent 44% of total settlements in FY 2022.”
SEC Settlements: Disgorgement and Prejudgment Interest in Monetary Settlements Totaled $507 Million
The report indicates that disgorgement and prejudgment interest imposed in actions against public companies and subsidiaries totaled $507 million in FY 2022, a decrease “from $839 million in the prior fiscal year”, representing “slightly more than half the FY 2013–FY 2021 average of $925 million.” In addition, the report points out that “FY 2022 had the lowest percentage of actions with disgorgement and prejudgment interest as part of monetary settlements since FY 2015.”
SEC Settlements: 16 Defendants with Admissions of Guilt in FY 2022
As noted in the report, “SEED includes data on admissions of guilt by public company and subsidiary defendants. SEED considers a defendant to have an admission of guilt if the admission is in the SEC action, as opposed to a parallel action.” The report indicates that “[s]ixteen defendants had admissions of guilt in FY 2022, double the highest number in any prior fiscal year in SEED.” As Professor Stephen Choi noted in the report, “Driven by actions involving Broker Dealer allegations, the number of defendants that settled in FY 2022 with admissions of guilt increased substantially.” Finally, the report points out that “[a]dmissions of guilt in the first approximately 18 months of Chair Gensler’s tenure are already higher than admissions during all of Chair Clayton’s tenure (nine) and over half the number of admissions during Chair White’s tenure (29).”
Footnotes
[1] SEED defines public companies as those that traded on a major U.S. exchange as identified by the Center for Research in Security Prices (CRSP) at the time the enforcement action was initiated, or otherwise within the five-year period preceding the initiation. Thus, public companies that traded over-the-counter or only on major non-U.S. exchanges are excluded, as are companies that did not become publicly traded until after the enforcement action was initiated.
Anat Carmy-Wiechman is the Associate Director and a former Wagner Fellow at the NYU Pollack Center for Law & Business.
Giovanni Patti is the Head of Research for the Securities Enforcement Empirical Database (SEED) at the NYU Pollack Center for Law & Business.
Peter Robau is a Senior Professional Fellow and a former Wagner Fellow at the NYU Pollack Center for Law & Business.
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