SEC Enforcement: 1Q22 (Part I)

I. Introduction

This is the first of two articles discussing the cases initiated by the Commission’s Enforcement Division during the first quarter of 2022. While it is always prudent to be careful when analyzing the results from one quarter, properly viewed they can provide important information regarding the direction of the program.

The work of the Enforcement Division during the period should also be considered in the context of the still on-going pandemic. For nearly two years the Division’s work has been largely hampered by its inability to sit across a table from a witness, pose questions, listen to the answer and do follow-up as appropriate. To be sure Zoom and Webex have been used effectively. But looking at a computer screen is not the same as sitting across the table from the witness. Nevertheless, the Division has worked hard and at times achieved very good results despite the difficulties.

This report, like those previously published regarding other time periods, will be divided into three segments. Part I will present the statistics for the first quarter of 2022. Part II will present selected cases from the period. Finally, Part III will analyze the statistics and the select cases presented in the context of earlier periods.

II. The statistics

During the first quarter of 2022 the Commission filed 53 new enforcement actions, excluding tag-a-long, 12j actions and similar matters. The cases were spread about evenly over the three months of the quarter, although slightly fewer cases were brought as the period drew to a close.

While the cases initiated during the quarter were primarily civil injunctive cases, during the first two months of the period that was not always the case. In January, for example, 10 civil injunctive actions were filed while 8 administrative proceedings were initiated. The next month, however, the pattern reversed. Only 9 civil injunctive actions were initiated while 13 administrative proceedings were commenced. In March the pattern again reversed with almost all of the cases being fled were brought in federal district court.

The number of actions brought in the first quarter appears to be consent with those from earlier periods. For example, in the first quarter of 2020 the Commission filed 48 enforcement actions. Similarly, in the final quarter of 2020 the agency again filed 48 enforcement actions.

The numbers clearly show that more enforcement actions filed in the first quarter of this year than in other comparable periods. Yet some would argue that a footnote is in order. During the first quarter of this year 12 of the enforcement actions involved only the failure of either an investment adviser or broker-dealer (there were 6 cases against investment advisers and 6 against broker-dealers) to file form CRS, a customer relationship summary. Each action was brought as an administrative proceeding. Some might suggest those actions differ from other more typical enforcement cases. Others may disagree. Hence the footnote. ‘

Finally, the categories into which the largest groups of actions for 1Q22 they were:

1) Investment advisers 18.8%

2) Insider trading 13.2%

3) Offering frauds 13.2%

4) Corporate/financial 7.5%

In contrast, the categories in the first quarter of 2021 were:

1) Misrepresentations 27%

2) Investment advisers 14%

3) Unregistered brokers 8%

Clearly the categories differ with the exception of actions focused on investment advisers, which has been something of a constant in recent periods. As will be seen in Part II of this article, the variety of cases filed in the first quarter of 2021 was also much broader than in the first quarter of 2022.

In contrast, the fourth quarter of 2021was largely consistent with the results from the current period:

1) Investment advisers 16%

2) Insider trading 12.5%

3) Corporate/financial 10%

The sole difference in the categories for the two periods is the large group of cases that fall into the category of offering fraud actions in the first quarter of 2022. The reason for this will become more apparent in Part II when the select cases are examined. That said, traditionally offering fraud actions center on microcap fraud. In the first quarter of 2022 there was a shift – many of the cases involve crypto assets. That may well reflect the changing focus within the Division. On May 3, 2022 the Commission announced that it is nearly doubling the size of what Enforcement now calls the Crypto Assets and Cyber Unit. The unit will expand to 50 dedicated positions.

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