SEC Reports Big Jump in Enforcement Actions

November 2, 2008

The Securities and Exchange Commission said that the second-highest number of enforcement actions in agency history took place in fiscal year 2008. For the second year in a row, the SEC also returned more than $1 billion to harmed investors through Fair Fund distributions.

The SEC brought 671 enforcement actions during the just-completed fiscal year, with the number of insider trading and market manipulation cases up more than 25 percent and 45 percent respectively over the previous year. In addition, the SEC said it has more than 50 ongoing investigations relating to the subprime market.

The Division of Enforcement also reached preliminary settlements with six of the largest firms in the auction rate securities market. Although not included in these FY 2008 enforcement statistics, these settlements, which are subject to final approval, would be the largest in the history of the SEC and would return more than $50 billion to investors.

The SEC said it took a record number of enforcement actions against market manipulation in FY 2008, including charges against a Wall Street short seller for spreading false rumors, and charging 10 insiders or promoters of publicly traded companies who made stock sales in exchange for illegal kickbacks.

Among the major fraud cases brought by the SEC in FY 2008, the SEC sued two Bear Stearns hedge fund managers for fraudulently misleading investors about the financial state of the firm’s two largest hedge funds. The agency also charged five former employees of the City of San Diego for failing to disclose to the investing public buying the city’s municipal bonds that there were funding problems with its pension and retiree health care obligations and those liabilities had placed the city in serious financial jeopardy.

The SEC brought the highest number ever of insider trading cases in FY 2008, including charging former Dow Jones board member David Li and three other Hong Kong residents in a $24 million insider trading enforcement action, and charging the former chairman and CEO of a division of Enron Corp. with illegally selling hundreds of thousands of shares of Enron stock.

Combating accounting fraud, including illegal stock option backdating, also was a priority for fiscal year 2008. During the year, the SEC charged eight public companies and 27 executives with providing false information to investors based on improper accounting for backdated stock option grants.

Another growth area is cases against U.S. public companies that use corporate funds to bribe foreign officials, an activity precluded by the Foreign Corrupt Practices Act (FCPA). In fiscal year 2008, the SEC filed 15 FCPA cases. Since January 2006, the SEC has brought 38 FCPA enforcement actions; more than were brought in all prior years combined since FCPA became law in 1977.

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