by Anat Carmy-Wiechman, Giovanni Patti, and Peter Robau
In a new report (PDF: 0.99 MB), 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 53 Enforcement Actions Against Public Companies and Subsidiaries in FY 2021
SEED currently provides data for SEC actions initiated against public companies traded on major U.S. exchanges and their subsidiaries from October 1, 2009 through the present.[1] SEED found that the SEC brought 53 new actions against public companies and subsidiaries in FY 2021, representing the lowest number since FY 2014, a 15% decrease from the 62 actions in FY 2020, and a 32% decrease from the average over the prior five fiscal years. Similar to FY 2021, SEED actions decreased in other years in which a new SEC Chair was sworn in (FY 2013 and FY 2017).
The above figure illustrates the number of SEC actions against public companies and subsidiaries in each fiscal year 2012 to 2021.
“Issuer Reporting and Disclosure” Accounted for the Majority (51%) of Public Company and Subsidiary Actions Filed
Issuer Reporting and Disclosure has been the most common allegation type in eight of the last 10 fiscal years. SEED found that FY 2021 was the first year that Issuer Reporting and Disclosure accounted for the majority (51%) of public company and subsidiary actions filed. As reflected in the chart below, the second most common allegation in FY 2021 involved Investment Adviser/Investment Company allegations (accounting for 26% of the actions). As noted in the report, this was the third year in a row in which Investment Adviser/Investment Company actions accounted for more than 20% of actions. Foreign Corrupt Practices Act actions accounted for 8% of all actions against public companies and subsidiaries in FY 2021, the only time this percentage has been below 10% in the years tracked by SEED. SEED also found that, in FY 2021, there were only two Broker Dealer actions (4%), continuing a decrease in share of actions since FY 2018, and the lowest number of actions since FY 2013 when there were zero. Finally, SEED found one Insider Trading action filed in FY 2021, the first such action in SEED.
The above figure contains a heat map of the percentages of SEC actions against public companies and subsidiaries for each allegation type from fiscal year 2012 to fiscal year 2021.
The SEC Brought 87% of Actions Against Public Companies and Subsidiaries As Administrative Proceedings
SEED found that most actions continue to be brought as administrative proceedings, with 87% (46 actions) brought in that venue in FY 2021. For all actions brought as administrative proceedings in FY 2021, the action and resolution were announced concurrently. SEED also found that, unlike administrative proceedings, only one of the seven civil actions (14%) had a concurrent resolution in FY 2021. The six actions (all civil actions) in FY 2021 without concurrent resolutions represented the highest number since FY 2012.
The above figure illustrates the percentages of civil actions and administrative proceedings against public companies and subsidiaries for each fiscal year 2012 to 2021.
SEC Settlements: 58% of Defendants Noted Cooperation with the SEC
The Commission considers four broad factors when negotiating a settlement with a cooperating defendant: “self-policing, self-reporting, remediation, and cooperation.” SEED measures the latter three factors – as an indication of cooperation by a public company or subsidiary defendant with the SEC – based on whether the SEC acknowledges voluntary reporting or explicitly mentions “remediation” or “cooperation” by the defendant in the settlement announcement.
Using this methodology, SEED found that, in FY 2021, 58% of public company and subsidiary defendants noted cooperation in settlements with the SEC, consistent with the average of 58% from FY 2012 through FY 2020. SEED also found that, in FY 2021, 40% of defendants that settled had monetary settlements and no cooperation noted, the highest percentage since FY 2017. Finally, SEED found that, continuing a trend from prior years, 94% of settlements involved monetary penalties.
The above figure illustrates, for each fiscal year from 2012 to 2021, the percentages of SEC actions against public companies and subsidiaries that noted: cooperation and monetary settlement; cooperation and no monetary settlement; no cooperation and monetary settlement; no cooperation and no monetary settlement.
SEC Settlements: Monetary Settlements Totaled $1.8 Billion in FY 2021
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. SEED found that the total amount of monetary settlements in actions against public companies and subsidiaries was $1.8 billion in FY 2021. This amount is consistent with average total monetary settlements of $1.6 billion for previous fiscal years FY 2012 – FY 2020. SEED also found that the second-largest monetary settlement in a public company or subsidiary action in SEED was imposed in FY 2021, in an action involving Foreign Corrupt Practices Act violations.
The above figure illustrates the average monetary settlement and the median monetary settlement in each fiscal year 2012 to 2021.
SEC Settlements: Disgorgement and Prejudgment Interest in Monetary Settlements Totaled $835 Million
SEED found that disgorgement and prejudgment interest imposed in actions against public companies and subsidiaries totaled $835 million in FY 2021, which is 46% of the total monetary settlement amount of $1.8 billion imposed on public companies and subsidiaries, and the lowest share since FY 2015.
SEED also found that administrative proceedings accounted for 87% ($723 million) of the disgorgement and prejudgment interest in monetary settlements in FY 2021, higher than the average of 58% from FY 2012 through FY 2020.
The above figure illustrates the percentages of civil penalties and other monetary settlements vs. disgorgement and prejudgment interest against public companies and subsidiaries for each fiscal year 2012 to 2021.
SEC Settlements: No Public Company or Subsidiary Defendants with Admissions of Guilt in FY 2021
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. For the first time since FY 2011, there were no public company or subsidiary defendants with admissions of guilt in FY 2021. Under Chair Jay Clayton’s leadership, nine public company or subsidiary defendants had admissions of guilt, lower than the 29 under Chair Mary Jo White’s leadership. The number of public company and subsidiary defendants with admissions of guilt decreased in each of the past two years, from five in FY 2019, to two in FY 2020, to zero in FY 2021.
As Professor Stephen Choi noted in the report “It will be interesting to see if this trend changes, as the SEC recently announced a policy to seek admissions in certain cases as a way to improve the deterrent value of enforcement actions.”
The above figure illustrates the number of public company and subsidiary defendants that settled with an admission of guilt, settled with neither admitting nor denying the allegations, and settled without either of those specific phrases regarding the allegations for each fiscal year 2012 to 2021.
Footnotes
[1] We define 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.
Anat Carmy-Wiechman is the Associate Director and a past 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 the Wagner Fellow at the NYU Pollack Center for Law & Business.
Disclaimer
The views, opinions and positions expressed within all posts are those of the authors alone and do not represent those of the Program on Corporate Compliance and Enforcement or of New York University School of Law. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the authors and any liability with regards to infringement of intellectual property rights remains with them.