The SEC Announces Results of Enforcement Actions in Fiscal 2017
V&E SEC Enforcement Update E-communication, November 29, 2017
By Jeff Johnston and Allison Fuller
On November 15, the Securities and Exchange Commission’s
Enforcement Division issued its annual report highlighting its priorities for
the upcoming year and reviewing the enforcement actions for its fiscal year
2017. The SEC reported a total of 754 actions for the year — including
446 standalone actions, 196 follow-on actions, and 112 actions for delinquent
filings — resulting in nearly $3.8 billion in monetary penalties and
disgorgements. As a result of the transition in leadership, these numbers are
down slightly from prior years: in FY 2016, the SEC filed 868 actions
(resulting in $4 billion in penalties and disgorgements), and in FY 2015, the
SEC filed 807 actions (resulting in $4.2 billion in penalties and
disgorgements). These actions involved a number of substantive areas, with a significant portion being actions related to (1) Issuer Reporting/Audit & Accounting and (2) Securities Offerings. The SEC also noted that individuals were charged in 73% of the standalone actions.
SEC Chairman Jay Clayton praised the “excellent work” of the
Enforcement Division, saying, “Through their tireless efforts to uncover
wrongdoing and hold bad actors accountable, they defend our Main Street
investors and support the integrity of our capital markets.” Co-Directors of
the Enforcement Division, Stephanie Avakian and Steven Peiken, explained that
their decision making is guided by five core principles: focus on the Main
Street investor; focus on individual accountability; keep pace with
technological change; impose sanctions that most effectively further
enforcement goals; and constantly assess the allocation of resources.
At the end of FY 2017, the SEC also announced the creation
of a Cyber Unit and a Retail Strategy Task Force with the goals of protecting
retail investors and combating cyber-related threats. The Cyber Unit will focus
primarily on market manipulation schemes that use social media platforms to
spread false information, hacking efforts to obtain material nonpublic
information, misconduct on the dark web, and violations involving distributed
ledger technology. The Retail Strategy Task Force will focus on identifying
large-scale wrongdoing with the potential to cause harm to retail investors,
including misconduct implicating the microcap market, Ponzi schemes, and
The SEC’s announcement highlighted a number of areas of
enforcement focus that we expect will continue to be of priority going forward.
Those of note include:
- Individual Accountability: 73% of the standalone enforcement actions in FY 2017 involved charges against individuals – a statistic that has risen to 80% in the six months since Chairman Clayton took office.
- Issuer Reporting, Disclosure Issues, and Auditor Misconduct: The Commission continued to focus its efforts on audit firms, as well as individual partners, for improper auditing practices. The Commission settled actions against two of the “Big 4” accounting firms related to failed audits of oil companies. The Commission also touted its action against an oil & gas company and three of its former top financial executives for a multi-year accounting fraud.
- Market Manipulation and
Cyber-Related Misconduct: The SEC brought charges against individuals for
allegedly trading on nonpublic, market-moving information stolen from
prominent law firms. The SEC also brought an action against a mechanical
engineer for allegedly scheming to manipulate stock prices by making a
phony regulatory filing.
- Insider Trading: As in
FY 2016, the SEC continued to pursue insider trading cases using its
advanced technology and investigative tools. The SEC brought actions
against multiple individuals, including a former government employee who
traded on nonpublic information about government plans to cut Medicare
reimbursement rates, as well as a partner at a private equity firm who reportedly
made nearly $30 million in illegal profits by trading in advance of a
- FCPA: The SEC continued
to bring actions for bribery of foreign officials and violations of the
statute’s books and records provision. The SEC attained a number of large
settlements in this area, including a $957 million settlement with a
petrochemical manufacturer and a $956 million with a foreign
FY 2017 saw a slight decline in the total number of
enforcement actions pursued by the SEC, but we expect the Commission to ramp up
efforts in FY 2018 as the Enforcement Division’s new cyber and retail
initiatives gain traction. Companies can prepare for an active SEC Enforcement
Division by focusing on internal controls and fostering a culture of compliance.
For more information, please contact Vinson & Elkins lawyers Jeff Johnston, Michael Charlson, Michael Holmes, Cliff Thau, John Wander, or Allison Fuller. Visit our website to learn more about V&E’s Shareholder Litigation & Enforcement and Government Investigations practices.