Trends in SEC Enforcement 3Q23 – Part IV, Conclusion
The work of the SEC Enforcement Division during the third quarter of 2022 is impressive. The numbers and cases initiated during the period reflects a program reaching out to cover the vast U.S. capital markets. That effort should reassure not just the markets but also those who invest their funds in those markets. At the same time, questions remain as to whether the program creates the kind of omnipresence that is required to help ward off those who would try to ignore the rules and improperly skew investments and transactions in ways that can and do harm those markets and investors.
Filing 144 new enforcement actions during the quarter is noteworthy as stated in Part I of this series. That number of cases dwarfs similar statistics from the other quarters of 2023 and in other years, with one exception – the third calendar quarter of the year. That is because the third quarter of the year is the fourth quarter of the Government fiscal year when most enforcement actions are typically filed. Thus, if only those periods are considered, the number of cases filed in 3Q23 become typical.
Another widely followed measure of enforcement performance is the areas which constitute the largest groups of cases. For 3Q23 those were offering frauds, insider trading, crypto assets, manipulation and misrepresentations. The top two areas accounted for about 34% of the actions. The remaining three areas accounted for about 66% of the actions filed. Each of these areas represent traditional ones for SEC enforcement except crypto.
Crypto is a relatively new category. Nevertheless, cases in this area represent 9% of the total which is significant. To be sure, the agency has focused in this area by adding personnel to cover it. At the same time the percentage of total cases in the area represents not just a largely new focus but a significant effort. This suggests that the enforcement program is flexible and responsive to new trends in the market, a critical point for meeting new challenges presented in the markets.
Other measures of performance for the period yield similar results. For example, during the quarter the agency filed cases in approximately thirty different areas. Those cases range from offering fraud, the largest area of cases to smaller areas such as ensuring that Form NT regarding an inability to file a timely required report such as a 10Q are filed. While this only occurs in a relatively small number of cases, the focus suggests that the enforcement program is being carefully tailored to monitor and safeguard even relatively small corners of the markets.
The Commission also conducted a number of sweeps during the period. While the agency does not typically publish the number of these actions, it appears that at least four were conducted during the period. One focused on the new marketing rule for advisers which centers on monitoring the factual material being distributed to the markets and investors, clearly a critical investment point. The focus on that area, as well as the other sweep areas, yielded about 30 new enforcement actions.
Some might express concern that the top two categories equal such a large part of the overall number of cases. That point, however, is balanced by the fact that 66% of the cases were in other areas. Another balance point is the number of sweeps. While those only yielded a relative handful of cases, when viewed in the context of the overall number of cases, each focused on an important area. For example, two centered on investment advisers and their adherence to the new marketing rule and the requirements of the custody rule. The former is designed to ensure that potential investors are being furnished with meaningful and reliable information by advisers. The latter keys on safeguarding investor assets held by advisers. And, a focus on each of the sweep areas confirms for the market and investors that the Commission is on the job, safeguarding not just against large offering fraud and Ponzi scheme which is important, but also in more specialized areas which are critical to investor protection and confidence as well as the markets.
Read together, the statistics reflect a program being continually monitored and updated to safeguard the markets and investors in traditional as well as emerging areas and even small corners of the market. That type of efforts can and should create a perception of omnipresence in the markets which aids in effectively safeguarding the vast U.S. capital markets.
Trends in SEC Enforcement 3Q23 – Part IV, Conclusion
The work of the SEC Enforcement Division during the third quarter of 2022 is impressive. The numbers and cases initiated during the period reflects a program reaching out to cover the vast U.S. capital markets. That effort should reassure not just the markets but also those who invest their funds in those markets. At the same time, questions remain as to whether the program creates the kind of omnipresence that is required to help ward off those who would try to ignore the rules and improperly skew investments and transactions in ways that can and do harm those markets and investors.
Filing 144 new enforcement actions during the quarter is noteworthy as stated in Part I of this series. That number of cases dwarfs similar statistics from the other quarters of 2023 and in other years, with one exception – the third calendar quarter of the year. That is because the third quarter of the year is the fourth quarter of the Government fiscal year when most enforcement actions are typically filed. Thus, if only those periods are considered, the number of cases filed in 3Q23 become typical.
Another widely followed measure of enforcement performance is the areas which constitute the largest groups of cases. For 3Q23 those were offering frauds, insider trading, crypto assets, manipulation and misrepresentations. The top two areas accounted for about 34% of the actions. The remaining three areas accounted for about 66% of the actions filed. Each of these areas represent traditional ones for SEC enforcement except crypto.
Crypto is a relatively new category. Nevertheless, cases in this area represent 9% of the total which is significant. To be sure, the agency has focused in this area by adding personnel to cover it. At the same time the percentage of total cases in the area represents not just a largely new focus but a significant effort. This suggests that the enforcement program is flexible and responsive to new trends in the market, a critical point for meeting new challenges presented in the markets.
Other measures of performance for the period yield similar results. For example, during the quarter the agency filed cases in approximately thirty different areas. Those cases range from offering fraud, the largest area of cases to smaller areas such as ensuring that Form NT regarding an inability to file a timely required report such as a 10Q are filed. While this only occurs in a relatively small number of cases, the focus suggests that the enforcement program is being carefully tailored to monitor and safeguard even relatively small corners of the markets.
The Commission also conducted a number of sweeps during the period. While the agency does not typically publish the number of these actions, it appears that at least four were conducted during the period. One focused on the new marketing rule for advisers which centers on monitoring the factual material being distributed to the markets and investors, clearly a critical investment point. The focus on that area, as well as the other sweep areas, yielded about 30 new enforcement actions.
Some might express concern that the top two categories equal such a large part of the overall number of cases. That point, however, is balanced by the fact that 66% of the cases were in other areas. Another balance point is the number of sweeps. While those only yielded a relative handful of cases, when viewed in the context of the overall number of cases, each focused on an important area. For example, two centered on investment advisers and their adherence to the new marketing rule and the requirements of the custody rule. The former is designed to ensure that potential investors are being furnished with meaningful and reliable information by advisers. The latter keys on safeguarding investor assets held by advisers. And, a focus on each of the sweep areas confirms for the market and investors that the Commission is on the job, safeguarding not just against large offering fraud and Ponzi scheme which is important, but also in more specialized areas which are critical to investor protection and confidence as well as the markets.
Read together, the statistics reflect a program being continually monitored and updated to safeguard the markets and investors in traditional as well as emerging areas and even small corners of the market. That type of efforts can and should create a perception of omnipresence in the markets which aids in effectively safeguarding the vast U.S. capital markets.