The Securities and Exchange Commission said 2019 was “a successful year” for its enforcement activity, reporting a higher number of new SEC enforcement actions despite being stymied by the government shutdown.
The SEC opened 862 new enforcement actions in fiscal year 2019, a 5% increase over 2018 and a 14% increase over 2017, according to the SEC Enforcement Division’s annual report released earlier this month. The division also reported more than $4.3 billion in penalties and disgorgements it secured through orders and judgments — a 10% increase from the previous year.
The division, which polices violations of securities law, the Foreign Corrupt Practices Act and other federal statutes, saw a spike in new actions against investment advisors and companies in the past year, with 191 compared to 108 in FY 2018.
“We achieved this success despite facing significant headwinds,” said enforcement division co-directors Stephanie Avakian and Steven Peikin in the report. They pointed to U.S. Supreme Court decisions that created obstacles for the division as well as the 35-day hold on activity caused by the government shutdown in December 2018 and January 2019.
While the division’s statistics bear takeaways for public companies and their counsel, the numbers shouldn’t necessarily be taken at face value.
“In general, it’s wise to take these reports with a grain of salt,” said Coates Lear, a former SEC senior enforcement counsel who is a partner at Squire Patton Boggs in Denver and Washington, D.C. Cases are initiated by SEC enforcement staff and don’t result from decisions at the top, he noted. But enforcement directors look at the numbers and “attempt to put the cases into different themes for the purposes of public messaging” in the annual report, Lear said.
“The report continues a theme that we’ve been seeing out of the SEC since Jay Clayton became the chair of the commission, and that is protecting retail investors being the top enforcement priority,” Lear added.
Securities defense litigator Tom Tenenbaum said the report shows an “an acceleration of cases” focused on protecting the “Main Street investor.” Part of what drove the SEC’s action numbers up in FY 2019, he noted, was its Share Class Selection Disclosure Initiative, where 95 investment advisory firms self-reported to the SEC that they failed to disclose conflicts of interests in how they offered mutual funds. The initiative led to a $135 million return to mutual fund investors, and it appears to be part of the division’s strategy in resolving cases more quickly and efficiently, Tenenbaum said.