SEC Enforcement Actions Rise, with Focus on Main Street Investors
Securities and Exchange Commission enforcement actions rose 10% in its most recent fiscal year that ended September 30, with actions against registered investment advisers comprising a big part of the jump, the regulator reported on Friday.
New “standalone” administrative and court enforcement actions jumped to 490 from 446 the previous year, with over half involving allegations of wrongdoing against retail investors.
The report did not distinguish between individual advisors and firms caught up in the “high level of activity” by the agency’s enforcers. But it said that 108 of the 490 cases, or 22%, related to advisors and investment companies. In fiscal 2017, the SEC pressed enforcement charges against 82 advisors and companies.
“As this report demonstrates, the Division’s approach to enforcement is multifaceted and outcomes-oriented with the interests of our Main Street investors front of mind,” SEC Chairman Jay Clayton said in a prepared statement.
In addition to its retail customer activities, SEC enforcers also brought actions last year related to securities offerings, audit and accounting, insider trading, and unspecified broker-dealer issues, the report said.
Under Clayton, who was appointed by President Trump, total SEC enforcement actions have decreased from more than 500 annually in 2015 and 2016. The current enforcement report notes that the higher totals were skewed in the earlier years by an unusually large number of self-reported cases as a result of its Municipalities Continuing Disclosure Cooperation Initiative, and cautioned against judging the Commission’s performance by numbers alone.
The agency this year, however, highlighted the growing number of mutual fund share-class actions it brought last year. Many resulted from a new self-reporting program in which broker-dealers are encouraged to report their failure to give investors less expensive fund shares classes than those that were sold. The regulator’s enforcement division recommends standardized favorable settlement terms to investment advisers that voluntarily report fee-related conflicts of interest.
Highlights of the SEC’s retail investor fraud enforcement cases in 2018 were the $4 million fine imposed on Wells Fargo Advisors in June for encouraging retail investors to actively trade complex market-linked instruments and the $1.8 million sanction against Ameriprise Financial Services in February for selling higher-fee funds to almost 2,000 accounts, according to the report.
The SEC collected a total of $3.945 billion in disgorgement and penalties from firms last year, up from $3.789 in the fiscal 2017. The money, which is returned to investors or to the U.S. Treasury, declined, however, from more than $4 billion in 2016 and 2015 as a result of two recent Supreme Court decisions, the regulator said.
In Kokesh v. SEC, the High Court ruled that disgorgement awards are limited by a five-year statute of limitations. The decision prevented the SEC from collecting about $900 million that would have been returned to investors, according to the report.
In Lucia vs. SEC, the Court found the regulator’s system for appointing administrative law judges to be unconstitutional. As a result, the SEC said in June that it was temporarily staying many pending administrative proceedings and diverting resources to rehear several cases.
“[R]aw numbers and gross totals do little to provide a true picture of whether the Division’s efforts have furthered the Commission’s three-part mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation,” co-directors of enforcement Stephanie Avakian and Steven Peikin wrote in introducing the report.