On November 2, 2020, the Enforcement Division (Division) of the U.S. Securities and Exchange Commission (SEC or Commission) released its annual report providing a detailed overview of the Commission’s enforcement efforts and accomplishments for the 2020 fiscal year ending September 30, 2020. In a trying and unusual year plagued by the COVID-19 pandemic, this report reveals a clear contrast between 2019 and 2020. The total actions the Commission brought were markedly down in comparison to last year, while the financial remedies assessed reached new highs.
The Commission brought a total of 715 enforcement actions this year, representing a 17% decline from 2019. Last year’s enforcement numbers were unusually high, in part because the 95 cases from the Mutual Fund Share Class Selection Disclosure self-reporting initiative made up 11% of the 865 enforcement actions in 2019. In 2020, in part due to COVID-19-related actions, securities offering frauds (32%) edged out investment advisers and investment companies (21% and 2019’s largest category) as the most active subject-matter categories for enforcement actions. Issuer reporting/auditing and accounting cases and Foreign Corrupt Practices Act cases each dropped notably in 2020 from 2019 totals in those categories. Despite this decrease, the report details a number of notable enforcement actions against issuers and registrants.
Meanwhile, the Commission assessed a record-breaking $4.680 billion in total monetary remedies: $3.589 billion in disgorgement and $1.091 billion in penalties. This represents an approximately 8% increase in monetary relief compared with 2019. However, 81% of this sum was derived from only 5% of the largest actions the Commission brought, marking an 11% increase from 2019. Two actions brought against Telefonaktiebolaget LM Ericsson and Telegram Group Inc. in 2020 account for more than $2.218 billion, amounting to 47% of the total monetary remedies the Commission assessed during this fiscal year in these two actions alone.
The enforcement report also echoes numerous themes presented by SEC Chairman Jay Clayton and Director of Enforcement Stephanie Avakian in their back-to-back speeches from September of this year (which we analyzed here). Namely, the report highlights SEC efforts to streamline and accelerate the evaluation of claims for whistleblower awards and reiterates the Commission’s focus on holding individuals accountable. The SEC Whistleblower Program in 2020 issued awards totaling all-time highs of $175 million to 39 individuals. This dollar amount is 200% higher than the next-highest year since the program’s formation in 2011, which underscores the increasing centrality of the whistleblower program to the Division’s overall enforcement program. With respect to holding individuals accountable, the Division reports that 72% of total standalone actions this fiscal year involved charges against one or more individuals, which closely tracks the 2019 percentages.
Director of Enforcement Avakian applauded the Division’s ability to work effectively to protect investors despite challenges related to the pandemic. Most notably, the Commission brought 492 actions after making the transition to an entirely remote work environment in mid-March. The Division opened more than 150 investigations and obtained 36 trading suspensions relating to COVID-19 issues. Avakian also highlighted the Division’s continued focus on shortening the time it takes to complete enforcement investigations and recommend an enforcement action. The Division was able to achieve a five-year best median average investigatory timeline of 21.6 months. Avakian also highlighted cases in which the Commission had awarded credit in settlements for extraordinary cooperation in the face of investigative obstacles imposed by the pandemic.
It is difficult to know how the Division’s priorities in 2020 will compare with 2021. A new SEC Chair and senior staff may seek to be more aggressive in certain areas, such as cases against larger public companies and financial services firms, including in the penalties they assess. They may also bring more cases against senior corporate officers in their individual capacities and be less likely to grant waivers of collateral consequences. That being said, the possibility of a Senate not controlled by the president-elect’s party may delay the confirmation of a new SEC Chair and create increased oversight over the eventual Chair. Further, budget uncertainty heading into 2021 may also affect the SEC’s enforcement program. In short, a new SEC enforcement agenda may not come fully into focus until months after the new administration begins. All that being said, it is notable that over the past four years, the Division was able to continue a vigorous and wide-ranging enforcement program in the face of daunting obstacles, such as the month-long government shutdown in 2019 and the COVID-19 work-from-home disruptions of 2020.
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