December 27, 2007

SEC Enforcement (and Corp Fin) Stats for the Past Year

Recently, the SEC released its 2007 Performance and Accountability Report, as well as its 2007 Selected SEC and Market Data. Here is a statement on enforcement statistics from Chairman Cox. All provide a wealth of information about the SEC’s activities during the past fiscal year (which ended on September 30th).

Here are some stats from the reports relating to the Enforcement Division:

– Total of 776 investigations initiated and 656 enforcement actions taken (involving a total of 1449 respondents or defendants; 33% of the actions related to reporting and disclosure); an increase of 14% from prior year (which is the first increase in 4 years, mainly due to 24 backdating cases and 39 cases against unregistered auditors)

– Obtained orders requiring disgorgement of illegal profits of $1.1 billion and another $507 million in penalties; a decrease from the $3 billion collected during each of past few years

– Total of indictments, informations or contempts in 144 cases; number of criminal cases has decreased during past two years after run-up in ’02-’05

– Total of 125 director & officer bars

– 682 referrals to Enforcement from Corp Fin; up over 30% from prior year

Here are a few Corp Fin related stats:

– 25.5 days to issue comments; down from 26.2 days in ’06

– 802 million searches on EDGAR; up from 531 million in ’06

– 77 new foreign private issuers registered with the SEC; 60 did so in ’06

SEC Changes Enforcement Policy on Closed Investigations

Last month, it was reported (eg. Reuters article) that under a new policy adopted by the SEC six months ago, the SEC will notify those under investigation when enforcement staff have decided to close the investigation. Here are some thoughts from Russ Ryan of King & Spalding, who is a former Assistant Director of the SEC’s Division of Enforcement:

1. A GAO report from August talked about this new policy in some context. Russ says he was “quite a bit surprised” to learn that 13% of the SEC’s open investigations – which would mean nearly 500 investigations – are more than 10 years old. He suspects, however that “very few of these investigations are really still active in any way.”

2. Russ thinks this is a “very good development for companies, investment firms, and the securities bar – and investors too. This has been a long standing concern of many defense lawyers and companies under investigation, particularly those that have publicly disclosed an SEC investigation and want to assure their shareholders that it is no longer a concern for the company. It now appears that the SEC staff will promptly notify companies when the investigation has been closed, so companies will no longer have to wait in fear of the unknown when an investigation appears to be over but they dare not call the staff and risk triggering renewed interest.”

3. From what Russ has seen and heard, the new policy is not being applied retroactively (i.e., if the case was already closed a year ago, “you’re not going to get a notice about it now unless you ask for it”). The Staff appears to be applying the policy only on a going-forward basis

Two GAO Reports on SEC Enforcement Matters

Earlier this week, at the request of Senator Charles Grassley, the Government Accountability Office released a report that examines the SEC’s oversight of the financial markets. The request stemned from Sen. Grassley’s concern that the SEC may have given preferential treatment to John Mack, head of Morgan Stanley, when the SEC investigated possible insider trading at Pequot Capital Management. The report is critical about how the SEC handles referrals from the NASD and NYSE.

This report follows another GAO report from September (here is a summary) regarding the SEC’s management of its enforcement caseload. This report concluded that the SEC needs to tighten its enforcement management procedures and increase the speed with which it distributes Fair Funds to investors.

– Broc Romanek