MORE STAND-ALONE CASES LEAD TO SEC’S RECORD ENFORCEMENT YEAR

SEC SealThe SEC Enforcement Division filed a record 868 enforcement actions in fiscal year 2016, which closed September 30. Highlights of the enforcement program included the largest number of cases ever filed against investment advisers and investment companies, as well as 21 Foreign Corrupt Practices Act-related enforcement actions. Fiscal year 2016 also saw a new record for money distributed to whistle-blowers in a single year with $57 million paid to tipsters, and the SEC obtained judgments and orders totaling more than $4 billion in disgorgement and penalties.

The raw figure of 868 new enforcement actions does not tell the full story of the agency’s activities, however. For purposes of the SEC statistics, an action in a complex fraud filed against multiple parties “counts” the same as a routine proceeding against dormant companies for failure to make required filings or follow-on actions brought after a federal court found a party civilly liable or entered a criminal conviction for securities laws violations. The raw number of cases filed may also be skewed when a large number of claims arise from a particular sweep or investigation, such as last year’s aggressive examination of participants in the municipal securities market.

The agency now makes it easier to analyze its enforcement activity, as it identifies whether actions are stand-alone cases, follow-on actions or routine failure to file claims. In 2014, stand-alone actions accounted for approximately 57 percent of all cases filed. That number rose to 62.8 percent in 2015 and 63.1 percent in 2016.

SEC Enforcement FY 2014-16

“By every measure the enforcement program continues to be a resounding success holding executives, companies and market participants accountable for their illegal actions,” said SEC Chair Mary Jo White.  She added that “over the last three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets.”

The SEC also brought some novel actions in 2016, including the first charges against a brokerage firm solely for failing to file Suspicious Activity Reports when appropriate and against an audit firm for auditor independence failures based on close personal relationships with audit clients. The Commission also charged an issuer of complex structured notes for material misstatements and omissions in connection with sales of exotic instruments to retail buyers.

The Commission did not shy away from pressing charges against prominent individuals. In December 2015, the SEC charged former pharmaceutical company CEO and hedge fund manager Martin Shkreli with fraud. As alleged, Shkreli misappropriated money from two hedge funds he founded and made material misrepresentations to investors among other widespread misconduct. In September 2016, the Commission charged prominent hedge fund billionaire Leon Cooperman with making more than $4 million in profits from trading on material inside information. According to the SEC charges, Cooperman used his status as a major shareholder to receive and trade on confidential information from a pipeline company executive about an impending sale of a major corporate asset, a natural gas processing facility.

Despite the uncertainty in the law surrounding prosecution of insider trading cases resulting from the conflictingNewman and Salman decisions in the circuit courts, the SEC has remained vigorous in bringing actions against individuals for trading on material nonpublic information. In addition to the charges against Cooperman, the SEC more than 70 parties with insider trading. According to the Commission, many of these cases involved complex insider trading rings which the Enforcement Division uncovered through the use of data and analytics to spot suspicious trading.

Read more about how the SEC's annual report of its enforcement activity in this article.