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Financial Fraud Law

For the SEC, 2013 Was a Very Good Year for Targeting Financial Fraud

 The Securities and Exchange Commission had a very good year targeting financial fraud. Those who commit fraud, not so much.

In fiscal year 2013, the SEC’s enforcement actions resulted in a record $3.4 billion in monetary sanctions ordered against wrongdoers.

The SEC filed 686 enforcement actions in the 2013 fiscal year, which ended in September.  The $3.4 billion in disgorgement and penalties resulting from those actions was 10 percent higher than FY 2012 and 22 percent higher than FY 2011, when the SEC filed the most actions in agency history.  

“A strong enforcement program helps produce financial markets that operate with integrity and transparency, and reassures investors that they can invest with confidence,” said SEC Chair Mary Jo White.  “I am incredibly proud of the dedicated and talented women and men of the Enforcement Division.  Our results show that we are prepared to tackle the breadth and complexity of today’s securities markets.”

George S. Canellos, co-director of the SEC’s Division of Enforcement, said, “We are focused on addressing wrongdoing in all corners of the financial industry.  Going forward, we will continue to be aggressive but fair in our pursuit of those who violate the securities laws.”

Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement, added, “Numbers tell only a part of the story as we look to bring high-quality enforcement actions that make an impact across the market.  We are proud of the terrific results achieved by our hardworking and committed staff and pleased with the strong and robust pipeline of investigations they’ve developed for the year ahead.”

Here are some highlights from 2013:

Market Structure and Exchanges – The SEC brought several significant actions against stock exchanges and other market participants on issues relating to market structure and fair market access.  The SEC obtained its largest-ever penalty against an exchange when NASDAQ agreed to pay a $10 million penalty for its poor systems and decision-making during the Facebook IPO. FY 2013 also included the SEC’s first penalty against an exchange for violations relating to regulatory oversight when the agency charged the Chicago Board Options Exchange (CBOE) and an affiliate for various systemic breakdowns.

Gatekeepers – Among actions against auditors, the SEC charged the Chinese affiliates of major accounting firms for refusing to produce documents related to China-based companies being investigated.  And the SEC charged trustees and directors for failing to uphold their responsibilities under the securities laws.

Insider Trading – The SEC filed multiple actions alleging wrongdoing at S.A.C. Capital Advisors and its affiliates, including an action against Steven Cohen for allegedly failing to supervise two senior employees and prevent them from insider trading under his watch.

Municipal Securities – The SEC increased its attention to securities violations by municipalities and other participants in the market for securities of cities and other governmental issuers.

Financial Crisis Enforcement Actions –  The SEC now has filed enforcement actions against 169 individuals and entities arising from the financial crisis resulting in more than $3 billion in disgorgement, penalties, and other monetary relief for the benefit of harmed investors.  The individuals charged include 70 CEOs, CFOs, or other senior executives.

New Admissions Policy – The SEC changed its longstanding settlement policy and now requires admissions of misconduct in a discrete category of cases where heightened accountability and acceptance of responsibility by a defendant are appropriate and in the public interest.  The first settlements under the new policy came in actions against Philip A. Falcone and his firm Harbinger Capital Partners, and JPMorgan Chase & Co.

Going to Trial – The SEC continued to deploy its litigation resources.  One example in FY 2013 is the favorable verdict obtained at trial against former Goldman Sachs Vice President Fabrice Tourre, who was found liable for his role in marketing a CDO.  The SEC also obtained a favorable decision after a lengthy trial against optionsXpress and two individuals for engaging in sham transactions to give the illusion of compliance with Reg SHO.

Whistleblower Tips – The SEC’s Office of the Whistleblower received 3,238 tips in the past year and paid more than $14 million to whistleblowers whose information substantially advanced enforcement actions.

Going forward, the SEC is highlighting these initiatives:

  • New Task Forces – The Financial Reporting and Audit (FRAud) Task Force was created to improve the Enforcement Division’s ability to detect and prevent financial statement and other accounting frauds.  The new Microcap Task Force brings additional resources and analytical expertise to address fraud in the microcap markets and target gatekeepers.
  • Consolidated Short Selling Charges – The SEC said that it will continue to conduct streamlined investigations to crack down on violators of Rule 105 of Regulation M.  The SEC recently announced actions against 23 firms that resulted in $14.4 million in monetary sanctions.
  • A Strong Pipeline – The SEC said that its Enforcement Division headed into the next fiscal year is “well positioned for significant achievements” across its program, having opened 908 investigations last year (up 13 percent) and obtained 574 formal orders of investigation (up 20 percent).
  • Technology Improvements – The SEC said that its Enforcement Division significantly improved its analytical capabilities, including those for forensics analysis and for reviewing and analyzing high volumes of electronic documents.  A Center for Risk and Quantitative Analytics was created to coordinate and enhance risk identification, risk assessment, and data analytic activities. 

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