SEC Enforcement Actions Sharply Declined

SEC Enforcement Actions Sharply Declined

With the Securities and Exchange Commission (SEC) appearing to be focusing more intensely on public company report filings and on misdeeds of investment advisors, other aspects of the securities markets are now receiving less attention under the Trump Administration, according to a new report. It found that new enforcement actions against public companies and subsidiaries decreased by 33 percent in the fiscal year 2017 compared to the prior fiscal year.

The report, “SEC Enforcement Activity: Public Companies and Subsidiaries, Fiscal Year 2017 Update,” relies on data from the Securities Enforcement Empirical Database (SEED), a collaboration between the NYU Pollack Center for Law & Business and Cornerstone Research. According to the report, the three-year trend of increasing enforcement reversed sharply in the second half of FY 2017.

According to co-author David Marcus, while the declines “coincide with the change in SEC leadership,” it is “too early to tell if this [enforcement lull] is a trend under the new leadership, or just due to the transition period.” Below are several other key findings with regard to SEC enforcement activity in 2017:

• There were 45 actions filed against public company-related defendants in the first half of FY 2017 and only 17 actions filed in the second half, which represents the largest semiannual decrease within a fiscal year since SEED began tracking data (FY 2010).
• Total monetary settlements against public company-related defendants also declined sharply from the first half of FY 2017 to the second half, from $1 billion to $196 million.
• Penalties in the second half of FY 2017 accounted for only 16 percent of total settlements for the fiscal year— the lowest percentage (and dollar amount) for any six-month period since SEED began tracking data in 2010.
• In the first half of FY 2017, 63 percent of public company-related defendants cooperated with the SEC, while only 32 percent cooperated in the second half.
• The SEC continued to focus on Issuer Reporting and Disclosure allegations in FY 2017.3 At 39 percent, it was the most frequent allegation type against public company-related defendants.
• Investment Advisor/Investment Companies allegations were the most frequent type in the second half of FY 2017, which is consistent with SEC Chair Jay Clayton’s stated goals.
• A total of 10 actions involving FCPA allegations were filed in FY 2017. Since February 2017, however, only two actions with FCPA allegations have been filed against public company–related defendants

While the new report is certainly good news for investment firms and other entities regulated by the SEC, it does not mean that SEC compliance should take a back seat. The SEC is not necessarily being less vigilant, but rather is shifting both resources and priorities under the new administration.

Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Dan Brecher, at 201-806-3364.