August 28, 2017

SEC Enforcement: Does Decline in Penalties Mean Less Enforcement?

This recent WSJ article pointed out a significant decline in penalties levied by the SEC during the first half of 2017:

The SEC levied some $318 million in penalties during the first half of 2017, a search of federal court documents and all publicly available records on the agency’s website and data provided by Andrew Vollmer, a professor at the University of Virginia School of Law, showed. Last year, agency actions yielded $750 million in penalties during the same period, an agency spokesman said.

The article notes that fines & penalties imposed by other financial regulators were also down sharply.  It cited a more business favorable climate under the Trump Administration & the winding down of financial crisis cases as contributing factors to a decline in SEC enforcement activity.

. . .Wait, Maybe Penalties Aren’t the Right Thing to Look At? 

This article by Labaton Sucharow’s Jordan Thomas says “not so fast.”  The article claims that enforcement activity shows no signs of easing.  Here’s an excerpt:

If the first half of the year was any indication, the SEC is on track to have another record year for enforcement activity in 2017. Looking at data compiled in our SEC Sanctions Database, which tracks a subset of enforcement actions that resulted in monetary sanctions exceeding $1 million, the agency shows no sign of easing its efforts to sanction bad actors.

The largest case thus far in 2017 was brought against Barclays, which agreed to pay $97 million in disgorgement and penalties for overcharging clients for mutual fund sales and advisory fees. Perhaps unsurprisingly, given where major financial firms are headquartered, cases were clustered regionally in the Northeast and West, with nearly half of all actions coming out of the Northeast. But actions coming from the South nearly doubled from last year and the Midwest saw a fivefold increase in the number of cases.

Also for the first half of 2017, more than 40% of cases we studied involved offering fraud. That’s almost double the number of offering fraud cases observed in the first halves of the last three years combined.

The article says that in light of this level of activity, the WSJ’s criticism of the SEC’s enforcement activity during 2017 is misplaced – and that it’s inappropriate to draw conclusions about the agency’s enforcement agenda by looking at 6 months of penalties in a vacuum.

Corp Fin Updates “Financial Reporting Manual”

On Friday, Corp Fin updated its “Financial Reporting Manual” to provide contact information for the Office of the Chief Accountant and to clarify guidance on the omission of financial information from draft & filed registration statements. The latter change adds references to the new CDIs on the same topic issued earlier this month.

John Jenkins