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According to the agency’s recently released enforcement activity statics, the SEC’s overall enforcement activity and the number of independent enforcement actions both increased in the fiscal year 2015 (which just ended on September 30) compared to prior years. More specifically, during fiscal 2015, the agency filed a record number of independent actions for violations of the federal securities laws. The agency’s enforcement statistics reflect a significant increase in the number of financial reporting and audit cases. The agency’s October 22, 2015 press release presenting its 2015 fiscal year enforcement statistics can be found here.
According to the press release, the agency filed a total of 807 enforcement actions in fiscal 2015, compared to 755 in fiscal 2014, representing a year over year increase of 52 actions (6.9%). However, these total enforcement action figures not only include the number of independent actions for violations of the federal securities laws, but also include actions against issuers who were delinquent in making required filings and follow-on administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions or other orders.
Looking just at the number of independent actions, there were a record 507 independent actions for violations of the federal securities laws in fiscal 2015, which represents a 22% increase over the 413 independent actions in fiscal 2014 (when 412 independent actions were filed), and an eye-popping increase of 48.6% over fiscal 2013 (when there were 341 independent actions).
The agency’s fiscal 2015 enforcement activity resulted in disgorgements and penalties of $4.19 billion, roughly the same as the $4.16 billion of recoveries in fiscal 2014.
Among the factors driving the increase in the numbers of independent enforcement actions in 2015 was the increase during the year in the number of financial reporting and audit cases. The agency filed 134 cases in the financial reporting and audit area in its 2015 fiscal year. That is up from 98 in fiscal 2014, and 68 in fiscal 2013. In other words, the number of financial reporting and audit cases has nearly doubled in just two years. The increase comes about two years after the SEC started a Financial Reporting and Audit Task Force to help increase its focus on these cases. Among the reasons identified in the press release for this increase was the agency’s increasing utilization of data and quantitative analytics.
During fiscal 2015, the agency also continued its increased focus on holding gatekeepers accountable, including attorneys, accountants, and occasionally even corporate directors. (I discussed the agency’s enforcement activities with respect to outside directors in a post last week, here.)
In its press release, the agency also emphasized its continuing focus on combating foreign corrupt practices and encouraging and protecting whistleblowers.
For those concerned about the integrity of the financial and securities markets, the SEC’s enforcement statistics could be encouraging or reassuring, to the extent the increased activity can be hoped to have a deterrent effect. Just the same, the statistics could be viewed as discouraging as well, to the extent they can be interpreted to mean that the increased activity is a reflection of increased misconduct. But whether encouraging or discouraging, the simple fact is that the agency is more active and committed to trying to demonstrate its effectiveness, among other ways, through the means of statistical increases.
The agency’s increased activity is obviously important to all those participating in the financial and securities markets. All participants should take it as a sign to monitor their own conduct as a way to try to avoid the unwanted attention of the regulator. The agency’s increased concentration on financial reporting and audit functions merits particular attention.
In addition, concerned enterprises will also want to carefully review their management and professional liability policies, in order to understand how their insurance coverages will respond if the SEC comes calling.
Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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