The SEC in 2019: Doing More With Less


Posted on November 15, 2019, by Mary P. Hansen, James G. Lundy and Nicholas S. Feltham in Enforcement, General, SEC. Comments Off on The SEC in 2019: Doing More With Less

Facing a 35-day government shutdown and new restrictions on the ability to recover disgorgement, it would be perfectly understandable if the SEC’s Division of Enforcement suffered a lackluster year. Nevertheless, according to their recently released Annual Report, the Division of Enforcement defied the odds and turned in an impressive year by most metrics. The full report is available here, but we address several key aspects of the report below.

In fiscal year 2019 (which runs from October to September), the SEC reported a total of 862 enforcement actions, including 526 “standalone” actions filed in either federal court or as administrative proceedings, which was its highest number of standalone actions since 2016. The SEC also filed 210 “follow-on” proceedings seeking the barring of individuals based on actions by other authorities or regulators. This number of “follow-on” proceedings matched the prior year’s total, and was about 10% higher than the number of such actions filed in 2016 or 2017. Though the Report laments the handcuffs placed on the Enforcement Division by the Supreme Court’s ruling in Kokesh v. SEC, which tied recoverable disgorgement to the five-year statute of limitations, the SEC nevertheless secured $3.248 billion in disgorgement – a five-year high. In addition, while 2019’s $1.101 billion in penalties was more than $300 million lower than what was ordered in 2018, it nonetheless surpassed the 2017 numbers, and contributed to a total amount of money ordered paid in 2019 (between disgorgement and penalties) that represented another five-year high for the SEC. Despite these metrics revealing a very solid year for the Enforcement Division, the Report made it a point to highlight that the SEC estimates that it has had to forgo more than $1.1 billion in disgorgement in filed cases as a result of Kokesh.

The strong financial results for 2019 were buoyed by several major actions settled in 2019. Indeed, in separate actions initiated against Mylan, Fiat Chrysler, Hertz, and two other major corporations, the SEC secured more than $200 million in penalties alone. In addition, in actions over the past two years against a variety of financial institutions relating to the early release of the American Depository Receipts, the SEC actions resulted in orders for more than $425 million in disgorgement and penalties. While these large actions contributed to the substantial financial achievements of the SEC in 2019, the report noted that in actions in which money was ordered to be paid the median amount of such total payments rose from $362,858 last year to $554,003 this year.

The SEC’s overall numbers were undoubtedly bolstered by successful implementation and conclusion of its Share Class Selection Disclosure Initiative. The Initiative, which permitted investment advisory firms to self-report failures to disclose conflicts of interest associated with the selection of fee-paying share classes as opposed to low-fee or no-fee share classes, allowed self-reporters to obtain standardized (and relatively favorable) settlement terms. The Initiative generated settlements against 79 advisers in March 2019, and another 16 advisers settled in September 2019. In total, the 95 advisory firms agreed to return more than $135 million to affected investors.

In addition to emphasizing all of these key metrics, the Report reiterated several themes that have been hallmarks of the SEC under Chairman Clayton. At the top of the list is “protecting main street investors,” as evidenced by the Share Class Initiative mentioned above, as well as the continued operation of the SEC’s Retail Strategy Task Force as a source for both providing education and generating new investigations. The Report also highlighted the continuing emphasis that the SEC would be placing on holding individuals accountable for wrongdoing, and highlighted several cases from the past year in which C-level executives were charged in both settled and litigated fraud actions. Digital assets, cryptocurrency, and other distributed ledger technology cases also played a prominent role in the report, as the SEC acknowledged that its enforcement actions in this space “matured and expanded” over the past year. Finally, the Enforcement Division also explained that it was working diligently to accelerate the pace of its investigations. Not only would this faster pace decrease the chance of encountering Kokesh problems when seeking disgorgement, but it also helps speed the pace at which harmed individuals and investors can recover their losses.

In a year in which it lost more than a month due to the government shutdown and just recently regained the ability to hire new staff, the Enforcement Division appeared to work both harder and smarter to generate results that met or exceeded its recent historical benchmarks. Going forward, it will be interesting to see whether the SEC can replicate or improve on these results with the benefit of additional time and a more complete complement of attorneys and other professionals.





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