In its recently-released annual report, the SEC’s Division of Enforcement highlighted examples of firms’ and individuals’ misconduct and shared statistics documenting actions taken to protect investors in the division’s fiscal year ended September 30, 2019.
A Slight Increase in Year-over-Year Enforcement Activity
Total enforcement numbers were up from the previous fiscal year, despite the government shutdown that occurred in December 2018 and January 2019. While the government shutdown meant the SEC needed to focus its efforts on monitoring markets and preventing potential threats, the Division of Enforcement did still bring some new enforcement actions during that time period.
For the fiscal year as a whole, 862 enforcement actions were filed, representing a five percent increase over fiscal year 2018. Of that number, 526 cases were standalone actions. It is worth noting that fiscal year 2019 numbers include 79 simultaneous enforcement actions brought on March 11 against investment advisers, related to the division’s Share Class Selection Disclosure Initiative (SCSDI.)
The resulting judgments and disgorgements totaled more than $4.3 billion in disgorgements and penalties, and approximately $1.2 billion was returned to investors harmed by misconduct. Specific actions taken by the SEC during its most recent fiscal year include 595 bars and suspensions of firms and individuals. The Division of Enforcement also suspended trading in 271 issuers’ securities as a result of its findings.
Enforcement Actions Taken Against Both Familiar Violations and New Matters
As in years past, the Division of Enforcement’s activity was centered around the SEC’s five core principles: 1) Focus on the “Main Street investor;” 2) Individual accountability; 3) Technological change; 4) Remedies designed to most effectively further enforcement goals; and 5) Continually reassessing resource allocations.
While the Division of Enforcement’s efforts cover each of these core areas, protecting retail investors and addressing the growing threat of cybercrime were the topics that received the bulk of the division’s attentions in fiscal year 2019.
The enforcement actions and cases brought by the Division of Enforcement represent a range of violations including issues related specifically to investment advisory firms, securities offerings, audit and accounting matters, broker-dealer misconduct, insider trading, market manipulation, public finance abuse, violations of the FCPA, Anti-Money Laundering cases, and more. This year also saw the first time the division filed charges for unlawful promotion of ICOs (Initial Coin Offerings) as well as an increase in cases involving cryptocurrencies.
Using the Annual Report to Strengthen Compliance Efforts
It is noteworthy that the report credits the SEC’s ability to bring many of fiscal year 2019’s cases with the Division of Enforcement’s access to technologies used to analyze vast amounts of data. Another point of interest for firms is that the Division is actively adding to its ranks. According to the annual report, there were 15 new hires during the past fiscal year and the Division has secured approval to add 22 more staffers.
This annual report provides a valuable look inside the workings of the Division of Enforcement. Of course, this retrospective look at the enforcement activities of the past year doesn’t necessarily provide a roadmap for CCOs for the coming year. Still, the report provides information you can use to enhance your firm’s policy and procedure testing efforts, evaluate compliance staffing levels and needs, review the effectiveness of your RegTech platform, and ultimately bolster your compliance programs.