August 4, 2015

SEC Enforcement: Civil Penalties at 10-Year High

According to a recent WSJ analysis, the SEC has more than doubled the typical fine against individuals over the past decade – responding, at least in part, to ongoing post-financial crisis pressure to crack down on potential bad actors.

For the first six months of fiscal 2015, the SEC levied more civil penalties than in any comparable period since at least 2005. Median fines on individuals were the highest since 2005 – with half of the fines exceeding $122,500, representing a 66% increase when adjusted for inflation.  Although median fines against companies (as opposed to individuals) were down relative to prior periods, the number of fines was up – from 66 in the first half of last year to 103 for the comparable period this year.

The record is seemingly at odds with recent political (see, e.g., Sen. Warren’s letter and this New Republic article) and internal (see Aguilar and Stein) attacks on the strength (or alleged weakness) of the SEC’s enforcement program. Logically, it seems that both the number and dollar value of enforcement actions should be variable over time because they should be contextual – i.e., dependent on actual company and individual conduct, which is – to a great extent – influenced by risks, pressures, opportunities, economics, international crises, etc., in the larger macroenvironment within which companies operate. Perhaps lower fines and/or fewer actions ought to be viewed as a positive indicator rather than a sign of weakness.

See also Jeff Werbitt’s previous blog on Chair White’s response to Senator Warren’s attacks, the Chamber of Commerce’s recent report suggesting enhancements to the SEC’s enforcement program and SEC Enforcement Director Andrew Ceresney’s response, and Gibson Dunn’s mid-year securities enforcement update.

Securities Litigation Update: Steady State

Gibson Dunn’s mid-year securities litigation update reveals these key statistics and trends (among others) for the first half of 2015:

– Filing and settlement trends continue to reflect a “steady state” of several hundred case/year.
– The number of “merger objection” cases filed so far this year represents about 20% of total cases filed in the federal courts – on pace to meet or exceed last year’s level.
– Cases naming financial institutions as the primary defendants are at the lowest level in this decade–only 10% of new cases filed, compared to 40% in 2008 at the onset of the credit crisis.
– Median settlement values are less than half of the level of just three years ago – $5.2 million in the first half of 2015 vs $12.3 million in 2012.
– Average settlement amounts increased dramatically – from $34 million in 2014 to $64 million in the first half of 2015, fueled by two very large settlements.
– 60% of 2015 settlements were under $10 million, while roughly 20% were over $50 million.
– Median settlement amounts as a percentage of investor losses was only 1.3%, continuing to reflect a decades-long pattern of investor losses ≤ 3%.

See also Cornerstone’s Midyear Assessment and Kevin LaCroix’s blog.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Board Portals: Potential Downsides & Mitigation Tips
– Emerging Trends (Including Litigation) in ESG Reporting
– Few 10-K Amendments Triggered by Restatements
– Optimizing the CEO-Chair Relationship
– Emerging Growth Companies Dominating the IPO Market


– by Randi Val Morrison