During the last month of 2022, the Securities and Exchange Commission (SEC) released its annual summary of all actions brought by the Division of Enforcement over 2022’s fiscal year. This report marks the first full year overseen by the Division Director Gurbir Grewal. The report provides a breakdown of the breadth of issues the Division addressed, flagged, penalized, or otherwise identified. As the Financial Industry Regulatory Authority (FINRA) awaits a decision from the SEC regarding proposed rule changes to the expungement request process, it’s important to get a sense of the SEC’s stances and activities over the past year. Below are some key takeaways from the recently released report.
Taking Swift Enforcement Action
According to the report, the SEC filed a total of 760 total enforcement actions during 2022’s fiscal year, marking a 9 percent increase from the previous year. This total included 462 new (also called “stand-alone”) enforcement actions, a 6.5 percent increase from 2021. It also included 129 actions against issuers accused of delinquency in making required filings with the SEC and 169 “follow-on” administrative proceedings seeking to “bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders.” Over the course of 2022, the money ordered in SEC actions (including civil penalties, disgorgement, and pre-judgment interest) totaled $6.439 billion—the highest amount on record in SEC history. This total is $3.852 billion more than that ordered in 2021. Of the total money ordered in 2022l, $4.194 billion was for civil penalties (the highest on record). Also of note, fiscal year 2022 was the SEC’s second-highest year in its history in the amount of whistleblower awards (both the highest number of individuals awarded and the total value of the amounts awarded).
A Greater Willingness to Litigate
The report also indicates that the SEC was more willing to engage in litigation during 2022. The Enforcement Summary stated that the Division litigated a record 15 trials in 2022, the highest number of trials conducted within a single fiscal year over the past decade. The Division brought actions against market participants despite potential collateral consequences, essentially showing the market their renewed commitment to enforcement as a priority. Upon the release of the Enforcement Results, Grewal stated, “As reflected in these results, the Enforcement Division is working with a sense of urgency to protect investors, hold wrongdoers accountable and deter future misconduct in our financial markets.” In a speech delivered in November, Grewal announced that “proactive enforcement sweeps that specifically target recurring issues…not only demonstrate accountability, but also [have] a more pronounced deterrent effect than if the [SEC] filed separate standalone cases.” The SEC’s Division of Enforcement takes pride in its proactive efforts to defend the public interest.
Enforcements Relating to Disclosures
Throughout 2022, the Division paid close attention to firms suspected of inadequate or inaccurate disclosures. Both FINRA and the SEC have highlighted their increased focus on discouraging misconduct of individual brokers and member firms, and the report indicates that their efforts addressed this goal. For instance, member firms paid a total of $1.235 billion in penalties in 2022 for a range of misconduct matters, ranging from recordkeeping violations to mishandling accusations of broker misconduct. More than two-thirds of the SEC’s stand-alone enforcement actions pertained to one individual defendant or respondent, indicating the Division’s willingness to address instances of wrongdoing at the individual level. The SEC noted that it “places a high priority on pursuing issuers or their employees who make materially inaccurate disclosures, as well as auditors and their professionals who violate applicable laws and rules in connection with such disclosures.” In 2022, the Division issued enforcement actions against so-called “gatekeepers,” such as attorneys, auditors, and transfer agents, who allegedly failed to uphold and carry out their trusted responsibilities.
Recalibrating Penalties to Create a Deterrent Effect
The results of the latest Enforcement Summary also highlight the Division’s emphasis on using enforcement actions to deter future misconduct. For instance, the Division recalibrated some of its penalties, such as requiring delinquent firms to retain compliance consultants, requiring admissions in the terms of settlements, and continuing to hold individuals accountable for misconduct. As the new year begins, the Enforcement Division maintains that it will continue to remain active in its investigations and enforcement actions. In particular, the fields of private funds, crypto-currency, and cybersecurity will remain priorities for the SEC. Additionally, the SEC’s ruling on FINRA’s proposed amendments to the expungement request process is expected this spring. Financial advisors and securities firms anxiously await this ruling, as it could make the path toward expungement even more difficult to pursue. Your best option is to reach out to a trusted and experienced securities law attorney to discuss your situation and identify the most strategic course of action.
If you need help with the FINRA expungement request process, reach out to Judex Law, LLC, by calling (303) 523-4022 to speak with an experienced and friendly securities law attorney.