SEC Enforcement Statistics: The Cornerstone – NYU Report
Cornerstone Research, in conjunction with the NYU Pollack Center for Law and Business, published its annual report on select SEC enforcement statistics (here). Specifically, the Report centers on SEC enforcement activity related to public companies and their subsidiaries (collectively “public companies”) with few exceptions. The Report has four key areas: Filings, venue, allegations and settlements.
Filings: Filings for enforcement actions, and those involving public companies, were down compared to earlier years. In fiscal 2020 the Report notes that 405 standalone enforcement actions were filed – the same number noted in the Enforcement Division’s Report, discussed in an earlier article (here). This is the lowest number since 2013 when 341 cases were filed. By comparison in 2019 526 cases were filed – a number which includes actions from the Share Class Selection initiative – while in 2018 there were 490 and in 2017 490 cases were filed.
Only 61 cases were filed in fiscal 2020 involving public companies, again the lowest number in years. Last year saw the lowest number of cases filed since 2013. In 2019, in contrast, there were 95 actions initiated against public companies while in the prior year there were 73 new standalone cases brought.
Most of the enforcement actions in fiscal 2020 were filed in the second half of the year. Indeed, perhaps the largest group of cases filed in 2020 were brought in the last quarter of the fiscal year with 18 filed in the last two weeks. And, during the last part of the fiscal year the Commission brought two actions based in its new EPS initiative. Most of the cases filed involving public companies were initiated as administrative proceedings.
Allegations: A heat map in the Report shows that 49% of the actions centered on company and disclosure issues. The next largest category was cases brought involving investment advisers which had been the leading category the prior year.
Issuer reporting and disclosure has long been the traditional leader in this area, although increasing numbers of actions have focused on investment advisers in recent years. Other areas reflected on the heat map for fiscal 2020 include actions involving the FCPA and broker-dealers.
Venue: Another key issue discussed in the Report is venue. The Report notes that 89% of the filings last year involving public companies were brought as administrative proceedings – only 11% of the actions were brought in federal court. Those numbers are comparable to the results in recent years. For example, in 2019 about 93% of the cases involving public companies were brought as administrative proceedings with only 7% of the cases being filed as civil injunctive actions in federal court – the traditional venue for initiating enforcement actions.
A review of statistics regarding venue in recent years reflects similar statistics: In 2018 84% of the cases involving public companies were brought as administrative proceedings while only 16% were brought in federal court. In 2017, 2016 and 2015 89%, 91% and 93% of the cases involving public companies, respectively, were brought as administrative proceedings.
Settlements: In fiscal 2020 corporations paid a total of $1.6 billion in monetary settlements to resolve actions initiated by the SEC. That amount is slightly above the $1.5 billion paid in the prior year. It is equal to the average amount paid over the last decade.
Disgorgement and prejudgment interest was imposed in about 35% of the settlements. While the report discusses the Supreme Court’s decision in Liu v. SEC, handed down in late June 2020, it does not detail how many of the settlements were impact by the decision. Nor does it state how many of the settlements entered into after Liu was decided calculated the amount of disgorgement in accord with traditional equitable principles discussed in the case and returned the funds to those injured by the wrongful conduct as the Court directed rather than transferring the funds to the U.S. Treasury.
Finally, the Report states that the majority of public companies cooperated with the Commission – 62%. That number represented a decline from 77% for the prior year. And, a chart shows the fact that only a small fraction of corporate settlements in recent years involved cooperation and no monetary component.
Comment
The Report provides a good look at an enforcement program that by the numbers underperformed in some areas in fiscal 2020 compared to earlier years but overall clearly operated in the best tradition of the agency. Continuing with an effective enforcement program with much of the country closed – as well as all of the Commission’s office – with masks, social distancing, and virtually no travel was an incredible achievement.
That is not to say there are not questions. The Report suggests that venue seemed to have shifted to administrative proceedings. While it does not offer any discussion of this point, for at least last year it may reflect the fact that most of the corporate cases are settled and the ease of filing under the circumstances.
The Report also does not discuss the declining percentage of cases involving cooperation or the fact that only a sliver of cases involved a settlement with no monetary component. Perhaps a more meaningful statistic would have been the number of settled cases where no penalty was involved since cooperation typically impacts the amount of the penalty, not disgorgement.
In the end if in fact cooperation is declining it bodes ill for the program in future years, perhaps suggesting that the potential reward is not worth the effort. For 2020 however, the Enforcement Results reflect success by a group of dedicated public servants.