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November 15, 2022

The Rise in SEC Enforcement Stats Is Welcome News, But the Numbers Alone Don’t Tell the Whole Story

WASHINGTON, D.C.—Stephen Hall, Legal Director and Securities Specialist, issued the following statement in response to the SEC’s enforcement statistics for fiscal year 2022, released today:

“The numbers sound impressive.  For example, the SEC announced that it brought 9% more enforcement actions in FY 2022 compared to the prior fiscal year, with a 6.5% bump up in “stand-alone” cases.  Add to that a large jump in total fines collected on the order of $4.2 billion.  That’s all good news—the U.S. capital markets, retail investors, and Main Street consumers are better off as the SEC cracks down on more fraud and misconduct, and these numbers undoubtedly reflect the hard work and determination of the SEC enforcement staff.

“But the public must not focus solely on the quantity of SEC cases, since the quality of those cases is at least as important.  And here, as we have recently explained, what matters most is imposing fines large enough to punish and deter massive financial firms with billions or trillions in assets; holding individuals, those who actually commit the violations, responsible; and making sure that violators must mend their ways, change their practices, and bear the full range of consequences that come with fraudulent and abusive behavior in the securities markets.

“Under these measures, the enforcement efforts of the past year show decidedly more mixed results.  In several instances, as the agency itself recognizes today, it opted to forego or minimize its punitive fines for certain defendants it thought especially cooperative or who tried to compensate victims.  We can appreciate this tactic as a way to win cooperation in some cases, but the fact is that disgorgement of ill-gotten gains alone is simply not enough to effectively punish and deter financial fraud and abuse.  Yes, disgorgement at least takes away the fruits of misconduct. Yet by itself, it can incentivize wrongdoing by tempting bad actors to give crime a shot, since the downside is just giving back what they have stolen from their victims.  We are at least encouraged to see in today’s results that civil penalties are no longer of secondary importance compared to disgorgement, at least in the aggregate.

“Even impressive-sounding fines have to be compared to a company’s bottom line.  The SEC has highlighted some unusually large penalties paid by a group of big banks and financial firms for systemic evasion of record-keeping violations critical to catching other misconduct.  Those fines certainly were large compared to penalties handed to many other defendants.  But the fines pale in comparison to these banks’ annual revenues and balance sheets, and who knows what other enforcement actions they managed to avoid by failing to preserve vital evidence?  We’re not persuaded that the SEC has ensured that its fines are ‘not just a cost of doing business.’

“That’s why, as we explained just a few weeks ago, it is vital that the SEC go beyond fines on companies and impose individual accountability.  That need is especially strong here given the widespread violations involving senior employees.  To be sure, the SEC can and has held senior leadership accountable.  Today’s press release points to the SEC’s actions against Boeing’s CEO, employees at Allianz, and others.  But isolated examples are not enough, and the public deserves an explanation as to why Wall Street executives and managers continue to get a pass.

“We are glad to see that the SEC has demanded and obtained some admissions of wrongdoing—including from the big banks and an international accounting firm.  Admissions are important signals to the public about the integrity of US markets and the quality of federal oversight.  But they should be the baseline expectation, not an exceptional result.  The SEC must therefore continue to push for admissions in a much wider range of settlements, not merely as an occasional tactic.

“Finally, most cases, and especially the high-dollar cases, must include meaningful conduct remedies alongside disgorgement, fines, and individual sanctions.  The agency has made strides this year by imposing independent monitors in some of its highest-profile cases, like the record-keeping cases against the Wall Street banks.  But even those requirements come with too much play in the joints for the defendants to push back against the monitors’ recommendations.  And in a related vein, the SEC’s lodestar here should be letting statutory disqualifications stand.  The federal securities laws take the view that those who violate the law and suffer sanctions forfeit their right to engage in certain market activities.  Granting waivers from those consequences should be the exception, not the rule, especially for the largest players committing the worst misconduct.”

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Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

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