SEC Enforcement Releases Its Annual Report

Author:Shearman & Sterling LLP
Profession:Shearman & Sterling LLP

On 2 November 2018, the Division of Enforcement of the SEC released its annual report setting forth enforcement-related statistics and its key initiatives. The report covers the fiscal year ended 30 September 2018.

Notably, on the statistics side, the annual number of SEC enforcement actions increased by approximately 9 percent (from 754 actions in FY 2017 to 821 actions in FY 2018). Of those actions, 490 were "stand alone" actions brought in federal court or as administrative proceedings, 210 were follow-on proceedings seeking bars and suspensions based on the outcome of other actions and 121 were proceedings to deregister public companies — typically microcap issuers — that were delinquent in their regulatory filings. The penalties imposed by the SEC increased by approximately 73 percent (from $832 million in FY 2017 to $1.439 billion in FY 2018), but the disgorgement of profits declined by approximately 15 percent (from $2.957 billion in FY 2017 to $2.506 billion in FY 2018). The Report notes that a decision by the U.S. Supreme Court in 2017 holding that SEC claims for disgorgement are subject to a five-year statute of limitations "continues to have a significant effect on the Commission's efforts to obtain disgorgement."

As to the 490 "stand alone" actions brought by the SEC in FY 2018, it has increased the number of actions related to securities offerings (25%), investment advisor issues (22%), broker-dealer misconduct (13%) and insider trading (10%). While the number of actions related to issuer reporting (16%) and market manipulation (7%) remain significant, their numbers decreased from FY 2017. A large majority of the 490 "stand alone" actions (72%) involved charges against one or more individuals. The report points out that these individuals "include senior officers at prominent issuers and other public figures, including the CEOs of Tesla Inc. and Theranos Inc., the former CEO of Seaworld...

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