Investment advisory firms were responsible for the biggest chunk of stand-alone enforcement actions from the SEC in fiscal year 2019, which ended September 30.
The biggest portion of the SEC’s 526 stand-alone cases in fiscal year 2019 concerned investment advisory and investment company issues (36%). That’s a big jump from 22% of the total in fiscal year 2018 and is partly due to the self-reporting of share class-related violations.
In fiscal year 2019, stand-alone cases involving securities offerings comprised 21% of all cases; issuer reporting/accounting and auditing 17%; broker-dealers 7%; insider trading 6%; and market manipulation made up 6% of all cases.
The data were among those released by the SEC’s Division of Enforcement in its annual report for fiscal year 2019.
“The results depicted in this report reflect the division’s focus on rooting out misconduct that can do significant harm to investors and our markets, and the focus the division places on identifying wrongdoing and taking prompt action to effectively help harmed investors,” SEC Chairman Jay Clayton says in a statement about the report.
Scroll down to see a breakdown of enforcement actions
The report describes the five core principles that guided the division’s efforts: a focus on the Main Street investor; a focus on individual accountability; keeping pace with technological change; imposing remedies that most effectively further enforcement goals; and constantly assessing the allocation of SEC resources.
The 526 stand-alone enforcement actions are part of the “diverse mix” of a total of 862 enforcement actions, according to the SEC.
The rest of the enforcement actions were made up of 210 “follow-on” proceedings seeking bars based on the outcome of SEC actions or actions by criminal authorities or other regulators, plus 126 proceedings to deregister public companies delinquent in their SEC filings.
The SEC says the enforcement actions addressed a broad range of significant issues, including issuer disclosure/accounting violations; auditor misconduct; investment advisory issues; securities offerings; market manipulation; insider trading; and broker-dealer misconduct.
Through these actions, the SEC says it obtained judgments and orders totaling more than $4.3 billion in disgorgement and penalties.
The SEC says it returned roughly $1.2 billion to harmed investors as a result of the enforcement actions.
The regulator says it also barred or suspended nearly 600 people from securities markets
“The actions and initiatives described in the report reflect our deliberate, principled approaches to investigations, litigation and case resolutions,” Steven Peikin, co-director of the SEC’s Enforcement Division, says in the statement.
Protection and accountability
The report notes that the Enforcement Division continued to focus resources on two key priority areas: retail investor protection and combating cyberthreats.
As in prior years, this resulted in a broad range of enforcement actions arising from violations by financial institutions, issuers, investment advisors, broker-dealers, hedge funds and other market participants.
The Enforcement Division also stayed focused on individual accountability by pursuing charges, where appropriate, against executives at all levels of the corporate hierarchy, including C-suite executives, registered individuals, accountants and auditors.
“Investors are often particularly vulnerable to the conduct of bad actors in the securities markets, and protecting them is a top priority. One area of particular focus was on misconduct that occurs in the interactions between investment professionals and retail investors,” the report says.
The report highlights, among other things, the SEC’s Share Class Selection Disclosure Initiative.
In September, the SEC ordered 17 advisory firms to pay millions in total disgorgement and prejudgment interest to mostly retail clients harmed by the sale of higher-priced mutual fund share classes when lower-priced share classes were available.
Sixteen of those firms self-reported and were ordered to pay harmed clients $10 million in total for their failure to disclose their mutual fund share class selection practices to their clients and were thus covered by the SEC’s initiative.
Under the initiative, the SEC agreed not to recommend financial penalties for advisors who self-reported failures to disclose receipt of 12b-1 fees — recurring fees deducted from the fund’s assets — in recommending mutual fund share classes when lower-priced share classes of the same mutual fund were available.
In March, the SEC settled mutual fund share class violation charges against 79 advisory firms ordered to pay more than $125 million to harmed investors.
The 95 firms that self-reported in fiscal year 2019 are partly the reason investment advisory firms had the biggest percentage of stand-alone enforcement actions.
The full SEC Division of Enforcement 2019 Annual Report is available here.