U.S. Securities and Exchange Commission Chair Gary Gensler said in a speech to the Practicing Law Institute that during the fiscal year that just ended on September 30, the agency filed over 700 actions and obtained judgments and orders totaling $6.4 billion, including $4 billion in civil penalties.
The actions, outlined in a recent press release, covered a wide range of misconduct including charges around insider trading, disclosure failures and omissions, market manipulation and fraud, misleading investors, executive accountability, failure to maintain books and records, failure to register crypto as a security and insufficient policies and procedures.
There were 760 total enforcement actions in the SEC’s fiscal year 2022, a 9 percent increase from 2021, including:
- 462 new, or "stand alone," enforcement actions
- 129 actions against issuers allegedly delinquent in required filings
- 169 "follow-on" administrative proceedings seeking to bar or suspend individuals based on criminal convictions, civil injunctions, or other orders.
Enforcement to deter future misconduct
The SEC has made it clear in its enforcement that treating fines as a cost of doing business is no longer an acceptable business practice for firms of any size. To deter future misconduct and increase accountability with the public, in a number of actions the SEC imposed record-breaking fines that recalibrated expected penalties for the infraction. The agency also imposed other requirements including third party review and audits of related policies, procedures and internal controls and admission of misconduct.
Focus on accountability
It’s not new that individual accountability is at the forefront of SEC enforcement. In 2022, more than two-thirds of the SEC’s stand-alone enforcement actions involved at least one individual defendant or respondent, a number that’s consistent with enforcement in past years. A number of these individuals were C-Suite or other senior executives. Charges include making false or misleading statements and overvaluing assets.
In additional cases, executives were required to return bonuses and compensation if there was misconduct within their firm, even if they were not personally charged with misconduct in the matter. The settlements invoked Section 304 of the Sarbanes-Oxley Act of 2002, often referred to as the claw back provision, which allows for the revoking of compensation including bonuses or other incentive or equity based compensation from the CEO and the CFO if the firm had to prepare accounting restatements due to material non-compliance and misconduct within the firm. The release notes that these actions were to “further ensure accountability from senior executives at public companies and incentivize them to prevent misconduct at their firms”.
Consulting, audit and law firms were also held accountable for failing to stand up to expected standards of trust and responsibility. Global firms were charged with infractions including having clients prepare their own audit documentation, improper professional conduct and violation of professional standards leading to misleading disclosures, and cheating on qualification exams. Individuals involved in the cheating scandal were also barred for life by FINRA. Actions were also taken against individual attorneys for roles in fraudulent securities schemes including unregistered offerings and pump and dump schemes.
Cyber and Crypto
“Fraud is fraud, regardless of the types of investors you have defrauded and the types of securities used in the fraud.”
-SEC Chair Gary Gensler
The SEC continues its focus on the rapidly changing crypto asset securities space. Agency staffing to address crypto nearly doubled. Enforcement actions included failure to register offers and sales, insider trading around crypto securities available for trading and a fraudulent Ponzi scheme.
The agency also levied significant enforcement concerning the failure of global firms to maintain policies, procedures and record-keeping that are keeping pace with current technology and business practices, leading to charges of insufficient policies and procedures to protect investors from identity theft and extensive failures to protect customer’s personal identifying information.
Market Abuse
"Abusive trading practices, such as insider trading, market manipulation, and cherry-picking, corrode trust in our markets, undermine market integrity, and victimize investors.".
-SEC Enforcement Results FY22 Press Release
November 15, 2022
Detection and prevention of insider trading remains a pillar of SEC enforcement strategy. The agency bought 43 enforcement actions for insider trading in FY2022. These enforcements include actions against senior executives, service providers and even a former member of Congress. Other actions include executives charged with possession of MNPI in violation of 10b5-1 trading plan requirements and a partner at a global consulting firm charged for trading in advance of a client’s corporate acquisition.
See how MCO helps firms manage the risk of MNPI and insider information
Data Analytics and Market Intelligence
T
he agency used sophisticated data analytics to uncover infractions including hacking to obtain access to MNPI or to improperly purchase stocks to manipulate price or volume, fraudulent and misleading penny stock schemes, cherry picking to unfairly allocate profit and loss at the expense of client accounts and insider trading. Learn more about how the SEC is harnessing the vast array of financial and marketplace data available to detect, uncover and investigate misconduct.
Staff from the EC’s Office of Investigative & Market Analytics provided assistance with investigations that led to charges regarding unauthorized and undisclosed inter-fund loans and fraudulent market manipulation.
In July, the Analysis and Detection Center of the Divisions Market Abuse Unit used data analytics to detect suspicious trading patterns, leading to changes against nine individuals in three separate insider trading schemes.
“A hallmark of the Enforcement Program in fiscal year 2022 was robust enforcement through resolutions that imposed penalties designed to deter future violations, establish accountability from major institutions, and order tailored undertakings that provide potential roadmaps for compliance by other firms.”
-SEC Enforcement Results FY22 Press Release
November 15, 2022
2022 SEC enforcement had substantive breadth and depth, with actions that addressed a wide range of violations and violators including individuals and companies large and small. The agency's 2022-2026 Strategic Plan promises a sustained focus on investor protection, a robust regulatory framework and evolving technology and rule sets.
Firms should be ready for another year of extensive SEC action and enforcement.
Is your compliance roadmap for 2023 in place?
MCO can help you streamline compliance across your organization and be ready to stand up to regulatory scrutiny. Contact us today for a demo to see MyComplianceOffice in action.
