Fewer SEC enforcement actions

The U.S. Securities and Exchange Commission filed 33 percent fewer enforcement actions against public companies and their subsidiaries in fiscal year 2017, reflecting a more permissive attitude toward white-collar crime that accompanied Republican dominance in Washington DC.

This decline coincided with changes in SEC leadership, which resulted from the 2006 election that put the GOP in charge at the White House and in both chambers of Congress, according to a report issued jointly by the New York University Pollack Center for Law & Business and Cornerstone Research.

The report, SEC Enforcement Activity: Public Companies and Subsidiaries, Fiscal Year 2017 Update, analyzes data from the Securities Enforcement Empirical Database (SEED).

The Securities Enforcement Empirical Database (SEED) tracks and records information for SEC enforcement actions filed against public company defendants.

Created by the NYU Pollack Center for Law & Business in cooperation with Cornerstone Research, SEED facilitates the analysis and reporting of SEC enforcement actions through regular updates of new filings and settlement information for ongoing enforcement actions.

In FY 2017, the SEC filed 62 new enforcement actions against public companies and their subsidiaries, compared to 92 actions in FY 2016. There were 45 actions filed in the first half of FY 2017 but only 17 in the second half.

“The data from SEED show a substantial decline in public company–related enforcement actions, the timing of which corresponds with SEC leadership changes in the new administration,” said Stephen Choi, the Murray and Kathleen Bring Professor of Law at the NYU School of Law and director of the Pollack Center for Law & Business. “For example, only two actions with (Foreign Corrupt Practices Act) FCPA allegations have been filed against public company–related defendants since February.”

“We also saw major decreases in monetary penalties,” noted David Marcus, senior vice president and head of Cornerstone Research’s finance practice. “Total settlements declined from $1 billion in the first half of FY 2017 to $196 million in the second half.”

SEC penalties fell 15.5 percent in 2017 compared to 2016, according to data compiled by Georgetown University law professor Urska Velikonja.

Highlights:

  • Actions against companies in the Finance, Insurance, and Real Estate industry division accounted for 42 percent of all public company–related actions in FY 2017, the highest percentage for any industry.
  • In FY 2017, 98 percent of public company–related actions (61 of 62 actions) resolved on the same day they were initiated. The FY 2010–FY 2016 median was 90 percent.
  • Issuer Reporting and Disclosure remained the most common type of allegation in FY 2017, accounting for 39 percent of actions against public companies.
  • Between the first half and second half of FY 2017, the percentage of public company–related defendants that cooperated with the SEC declined from 63 percent to 32 percent.

Additional findings on SEC enforcement actions against public company–related defendants are available in the report.

“Lax enforcement demonstrates that citizens are being discouraged from trying to fight against corruption,” said New Jersey Democrat Lisa McCormick. “Registering a complaint seems futile, risky even, and the scale of the problem can feel overwhelming. Fewer SEC enforcement measures, deregulation, hindering public access to the courts and restrictions on class action lawsuits are all part of an anti-consumer culture that deserves to be fought to establish justice for all.”

Jay Clayton, a former Wall Street lawyer, who took over in May, presided over a slowdown in hiring that left the agency’s enforcement division with at least 100 open positions among investigators and supervisors, agency officials have said. 

Clayton has has said he would prefer to avoid penalizing a corporation over the wrongdoing of a single individual.

“Companies are more complicated because you can have a relatively junior person in terms of the hierarchy who is a bad actor, who you’re getting rid of. And I have a hard time making shareholders pay substantially for that type of activity,” he told the House Financial Services Committee.

“Clayton appears to be choosing to go after small players who steal a lot of money from few people, and to go easier on big players who put many people at risk of losing small amounts of money, but large in the aggregate,” said Velikonja, the Georgetown professor.

McCormick said, “That is like declaring open season on consumers, who are vulnerable to financial fraud and corporate corruption.”


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