The SEC Aces Its Report Card: Enforcement Activity Maintains Record Pace in 2023
On November 14, the Securities and Exchange Commission (“SEC”) published its 2023 annual enforcement report which revealed a continuation of 2022’s record-setting enforcement activity.1 The SEC imposed $4.95 billion in financial sanctions in 2023, the second highest amount in SEC history after last year’s record numbers. Included in that total is $3.37 billion in disgorgement, up from $2.245 billion in 2022, and $1.58 billion in civil penalties, down from last year’s record-setting $4.19 billion. The $3.37 billion in disgorgement and $1.58 billion in civil penalties both represented second highest amounts in SEC history.
The SEC also announced that it filed 784 total enforcement actions in fiscal year 2023, a 3 percent increase over fiscal year 2022, including 501 original, or “stand-alone,” enforcement actions, an 8 percent increase over the prior fiscal year. Both numbers were the highest amount since fiscal year 2019. Sanjay Wadhwa, Deputy Director of the Division of Enforcement, explained that these numbers
reflect the efforts of a staff that remains steadfastly focused on fulfilling the SEC’s investor protection mandate . . . to doggedly pursue bad actors in every corner of the securities industry and hold them accountable for their transgressions.
The SEC’s Director of Enforcement, Gurbir Grewal, added that the Enforcement Division is “work[ing] with a sense of urgency [and] using all the tools in our toolkit.”
Included in that toolkit were a number of initiatives aimed at proactively investigating recurring industry issues. For instance, the Enforcement Division has continued to effectively employ its EPS Initiative, which monitors issuer financial metrics to identify potential manipulators of publicly disclosed earnings per share, leading to an increase in the number of enforcement actions involving issuer reporting or accounting and auditing issues:
|Action Type||FY 2021||FY 2022||FY 2023|
|Standalone Enforcement Actions||42||57||68|
|Total Enforcement Actions||70||91||107|
The annual report also highlighted the many enforcement actions initiated by the SEC in 2023. For example, regulation of crypto markets has emerged as a major priority for the SEC in 2023 as they are seen to represent the “perfect storm of investor risk,” per Grewal. Similarly, Enforcement brought a number of actions for rule violations without any allegation of fraud. The actions, often brought as a sweep or a group of factually separate matters with similar charges, included charges for reporting and filing violations under Exchange Act Rule 12b-20, Section 13(a), Rule 13a-11, Rule 13a-15(a), and Section 16(a).
Another of the Division of Enforcement’s many tools that was used to great effect in 2023 was the whistleblower program, which received a record number of tips and issued a record amount of awards. Whistleblower awards totaling nearly $600 million in 2023, up from $229 million in 2022, including a record-breaking $279 million awarded to one whistleblower. The dramatic rise in whistleblower awards was commensurate with the rise in whistleblower tips received, jumping approximately 50% to more than 18,000 tips from the then-record 12,300 whistleblower tips received in fiscal year 2022.
The SEC also continues to pursue individuals and hold them accountable for their roles in violations of the securities laws. The annual report explained that in fiscal year 2023, approximately two-thirds of its cases involved charges against one or more individuals. These actions resulted in 133 orders barring future service as officers and directors of public companies, the highest number in a decade.
Ultimately, these results reflect the continued emphasis on its role as the “cop on the beat” under current SEC Chair Gary Gensler. We anticipate that emphasis on enforcement will continue in fiscal year 2024. Public companies and executives must continue to be mindfully proactive in prioritizing compliance with SEC rules and regulations and avoid becoming an SEC enforcement target.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.