SEC Extends Enforcement Reach in 2019

Money returned to swindled investors jumps 50% to $1.2 billion.

The long arm of the SEC extended a little further in 2019 as the regulator brought 41 more enforcement actions, and obtained $400 million more in disgorgement and penalties than last year, a 5% and 10% increase, respectively.

As a result of the enforcement actions, the Securities and Exchange Commission returned just under $1.2 billion to swindled investors, a 50% jump from the $794 million returned to harmed investors in 2018, That’s according to the SEC Division of Enforcement’s annual report for 2019.

“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,” SEC Chairman Jay Clayton said in a statement. “Across a broad array of cases, the enforcement staff has continued to show determination, sophistication, and thoughtfulness in detecting and deterring bad conduct and crafting meaningful remedies.”

In fiscal year 2019, the SEC brought a total of 862 enforcement actions, including 526 standalone actions, up from 821 actions, and 490 standalone actions in fiscal 2018. It also obtained judgments and orders of more than $4.3 billion, up from $3.9 billion in 2018.  The actions concerned issues such as auditor misconduct, issuer reporting/accounting and auditing matters, investment advisory issues, securities offerings, market manipulation, insider trading, and broker-dealer misconduct.

The enforcement actions also led to 595 bars and suspensions, and a suspension of trading in the securities of 271 issuers in 2019. That compared with the suspension of trading in the securities of 280 companies, and 550 bars and suspensions in 2018.

Among the SEC’s standalone cases in 2019, 36% concerned investment advisory and investment company issues, 24% involved securities offerings, and 17% were over issuer reporting/accounting and auditing matters. Another 7% of actions were related to broker-dealers, while 6% involved insider trading, and another 6% concerned market manipulation.

The SEC said the 5% of cases that involve the largest financial remedies in 2019 accounted for most of all financial results the SEC obtained. The remaining 95% of cases accounted for about 30% of monetary remedies.

The picture, however, wasn’t all bright. The SEC said despite the successes in enforcement and recovery, its actions have been hurt by a 2017 Supreme Court ruling that has led to a disgorgement shortfall of more than $1.1 billon.

In the June 2017 decision in Kokesh v. SEC, the Supreme Court held that SEC claims for disgorgement are subject to a five-year statute of limitations.

“The Kokesh decision has had a significant impact, as many securities frauds are complex, well concealed, and are not discovered until investors have been victimized over many years,” the SEC said in its report. “The actual impacts of Kokesh are likely far greater than this number reflects, however, because – since the Kokesh decision – – the division has shifted its resources to those investigations which hold the most promise for returning funds to investors.”

The SEC also reported that 69% of the standalone actions in 2019, excluding actions brought as part of the share class initiative, involved charges against one or more individuals. The individuals charged include those at the top of the corporate ladder, such as CEOs, CFOs, and COOs, as well as gatekeepers such as accountants, auditors, and attorneys.

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