Trends in SEC Enforcement: 1Q 24, Conclusion

This is the final segment of a four-part series focused on trends in SEC enforcement during the first quarter of 2024. During that period the Commission filed 52 new enforcement actions. Less than half of those cases were civil injunctive actions, the reverse of the typical situation in which most of the new cases are filed in federal court as civil injunctive actions.

The explanation for the fact that 32 administrative proceedings were filed during the period is straight forward – a special program or sweep was being run on issuer compliance with books and records and all of the resulting cases were filed as administrative actions. That explanation only covers part of the statistics, however. It does not explain the fact that only 20 federal court civil injunctive actions were filed. Indeed, one year earlier, in the first quarter of 2023 the agency filed 80 new cases, 48 of which were federal court actions and 32 administrative proceedings. The pattern was the same in the first quarter of 2022 when the number of civil injunctive actions filed outdistanced that of administrative proceedings which is typical.

Whether 1Q24 represents the beginning of a new trend or is an aberration cannot be determined at this time. And, it may never be clear since the Supreme Court may have altered the pattern by concluding that the Commission cannot impose penalties in an administrative proceeding in SEC v. Jarkesy, No. 22-857 (Decided June 27, 2024). That decision, which is based on the Seventh Amendment to the Constitution, cannot be altered by legislative action. The inability to impose financial penalties in administrative actions is likely to impede the use of that type of action, at least in some, if not many, instances.

The mix of cases filed in the first quarter is fairly typical for the Commission. Setting aside the books and records cases since they are from a sweep, the largest groups of case were offering frauds, false statement cases and those involving a market manipulation or financial fraud.

Each of the largest groups or categories of cases initiated in 1Q24 represents a long standing, typical focus for SEC enforcement. This point is well illustrated by looking at the largest groups of cases filed one year earlier in the first quarter of 2023. There the largest groups of cases were offering frauds, crypto assets, manipulation and insider trading, all very traditional areas of focus for Commission enforcement.

What may not be typical, however, is the overall variety of cases being filed. In 1Q24 the grouping of “significant other cases” (Part III of the series) only included cases from eight different areas. That contrasts sharply with the 23 areas of significant other types of cases identified in 2023 or the 21 areas in 2022. Those statistics suggest that while the Commission may be continuing to focus its enforcement efforts in traditional areas such as offering frauds and insider trading, its reach into other areas may be contracting. That idea may encounter difficulty if it was to continue filing cases in a large number of areas by using administrative proceedings which were considered to give the agency essentially the same remedies as civil injunctive actions until the decision in Jarkesy cited above. If this interpretation of the data is correct, the idea if implemented may have significant adverse consequences for SEC enforcement over the long run in view of the new limit imposed on administrative proceedings.

What is clear from an analysis of 1Q24 results is that the jury, so to speak, is still out. The areas of primary focus continue to echo those which have long been the keys to enforcement. At the same time, it is unclear if the agency was at least experimenting with shifting focus from district court civil injunction actions to administrative proceedings for many cases. While the beginning of such a trend may have been emerging in 1Q24, the Supreme Court’s decision in Jarkesy may have halted it. If, however, the Commission is considering a contraction of its reach and the focus of the enforcement program as statistics from recent years suggest, that development could have significant and wide spread consequences post Jarkesy not just for the enforcement program but also the markets and ultimately the investors the program seeks to protect if not significantly adjusted in view of the resulting contraction of the SEC’s presence in the markets as the cop on the beat.