SEC Enforcement Activity Up From Last Year; One Case Affected 8,400 Investors

By and | November 7, 2019

Enforcement activity by the U.S. Securities and Exchange Commission in fiscal 2019 resulted in $4.3 billion in fines and disgorgements, up from $3.9 billion a year earlier, the regulator said on Wednesday.

Those fines and disgorgements – or the return of ill-gotten gains – came through 862 enforcement actions, up from 821 in 2018. That is the second-highest level ever, after a record 868 actions taken in 2016, and the highest number of cases and largest amount collected under SEC Chairman Jay Clayton, who took the reins in 2017.

The SEC returned $1.2 billion to harmed investors, barred or suspended nearly 600 people from securities markets, and suspended trading in 271 companies, it said in an annual enforcement report.

“The results show broadly that we haven’t taken our foot off the gas,” Steven Peikin, co-director of the SEC’s enforcement division, told reporters along the sidelines of an event in New York.

The tally got a boost from a new initiative through which the SEC allowed investment advisory firms to self-report violations of conflict-of-interest rules to avoid a fine. Through it, 95 firms that came forward returned $135 million to affected investors.

The initiative is wrapping up, with just “a couple left in the pipeline,” SEC Enforcement Co-Director Stephanie Avakian said at the event.

The volume of cases involving fraud by small firms or investment advisers shows the agency is “sticking to its focus on protecting Main Street investors,” said Kurt Wolfe, an enforcement attorney at Troutman Sanders LLP.

Retail investors have been a priority for Clayton since he took the helm at the SEC.

“The results depicted in this report reflect the division’s focus on rooting out misconduct that can do significant harm to investors and our markets,” Clayton said in a statement.

A significant portion of the total amount assessed came from a single action related to a massive Ponzi scheme affecting over 8,400 retail investors.

Woodbridge Group of Companies LLC and its former owner and chief were ordered to pay over $1 billion in combined penalties and disgorgement. The SEC said it expects investors will be able to recoup at least 50% of their investments.

The year’s activity also included settlements with Facebook Inc, Mylan NV, Fiat Chrysler Automobiles N.V., Nissan, and KPMG.

The uptick in activity was notable given a 35-day government shutdown in 2018 and 2019 and a hiring freeze that ended earlier this year, SEC officials said.

A 2017 Supreme Court decision continued to curtail the SEC’s ability to reclaim funds from bad actors, the agency said in the report. The ruling in the case of Kokesh v. SEC found the agency faced a five-year statute of limitations for pursuing disgorgement claims.

The SEC said it had to forgo $1.1 billion of disgorgements in filed cases as a result.

“The real tally is probably a fair amount higher because we’ve made decisions with Kokesh in mind regarding resources,” Avakian said on Wednesday.

(Reporting by Pete Schroeder in Washington and Chris Prentice in New York Additional reporting by Suzanne Barlyn in New York; editing by Bernadette Baum and Jonathan Oatis)

Topics New York

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