SEC Enforcement Results for FY 2023 | Key Stats and Trends

SEC Releases

Introduction

On November 14^th, the SEC released their enforcement results for the Fiscal Year 2023. The amount of enforcements has increased from 2022.

SEC Chair, Gary Gensler, discussed their role as the “cop on the beat” existing to “hold wrongdoers accountable”.

While 2022 was certainly a record setting year, the SEC continued their increased enforcement efforts in 2023.

2023 Enforcement Results

• Financial Remedies
  • 2023:
    • $4.949 billion in Financial Remedies (Second highest in history).
    • $3.369 billion in Disgorgement and Prejudgment Interest (Second highest in history).
    • $1.580 billion in Civil Penalties (Second highest in history).
• Enforcements
  • 2023:
    • 784 Enforcement Actions (3% increase over 2022).
    • 501 “stand-alone” enforcements (8% increase over 2022).
• Almost $600 million in whistleblower awards for 2023 (Record setting amount).
  • $279 million was given to one whistleblower in 2023 which was also a record.

Enforcement Actions Based on Industry Trends

• The Marketing Rule
  • Nine (9) Investment Advisers were charged related to hypothetical performance targeted to mass audiences.
    • $850,000 combined in civil penalties to those Firms.
  • A separate Adviser was fined over $1 million for violations including the Marketing Rule.
• Investment Professionals and Service Providers
  • A Private Equity Firm failed to disclose millions in brokerage fees paid to a Firm owned by the CEO.
    • They paid $6.5 million in penalties and more than $14 million in disgorgement and prejudgment interest.
  • An Investment Adviser was charged $9.5 million in penalties, and more than $8.5 million in disgorgement and prejudged interest, for undisclosed conflicts of interest involving a Cash Sweep Program.
  • An Investment Adviser was charged $4 million for misleading Trustees of a Fund to obtain $20 million in rescue financing.
• Actions that Impede Regulatory Oversight
  • A well-known Firm was charged $6 million for failing to provide complete and accurate blue sheet data.
  • A Broker-Dealer was charged $7 million for incorrectly marking an estimated millions of orders over a five-year period.
  • One Firm and its Parent Company were charged $6 million for failing to file hundreds of SARs from 2009 to 2019.
• Insider and Major Shareholder Reporting
  • 11 actions focused on ownership reports required for filing to the SEC.
    • 6 officers, directors, and major shareholders failed to report their holdings in a timely manner.
    • 5 Publicly Traded Companies were charged for their contribution to the filing failures on their insiders.
  • $1.5 million in combined civil penalties.
• Cybersecurity
  • A Broker-Dealer was charged for allegedly making false and misleading statements/omissions related to information barriers to prevent misuse of sensitive customer information.
  • A software company was charged $3 million for misleading disclosures related to a ransomware attack that affected 13,000 customers.
• ESG (Environmental, Social, Governance)
  • One Firm paid $19 million in civil penalties for marketing itself as a leader in integrating ESG into investments despite failing to adopt policies and procedures to ensure the public statements were accurate.
  • An Asset Management Company paid $4 million in penalties due to policy and procedure failures involving mutual funds and an account strategy that also was marketed as ESG investments.
• Whistleblower Rights
  • An Investment Adviser was charged $10 million dollars related to policies and procedures that created significant impediments to whistleblowing.
  • Other Firms were charged for using employment and separation agreements that violated whistleblower protection rules.
• Market Abuse
  • An alleged multi-year front-running scheme by two financial service professionals creating $47 million in profits was discovered and eliminated.
  • A public healthcare company’s executive was charged for insider trading to avoid over $12 million in losses.

Vigilant’s “Hot Take” on SEC Enforcements in 2024

Although there are no certainties, we envision that major topics of focus for 2023 will continue for 2024.

Important topics include, but are not limited to:

• Private Fund Advisers.
• Electronic Communication Recordkeeping.
• Compliance with the Marketing Rule.
• Cybersecurity and Use of AI.
• Proper disclosure and supervision of conflicts of interest.

Vigilant’s Conclusion

After another year of high volume as it relates to enforcement actions, we anticipate the current regulatory climate to continue in its “aggressive fashion” throughout 2024.

It is vital that Firms continue to analyze their compliance programs for deficiencies and make proactive remedial efforts.

Additionally, Firms that have not yet been examined by the SEC or have not been examined in a number of years, should consider the benefits of utilizing a Mock SEC Exam. Leveraging experienced professionals that provide a thorough analysis, can help identify unforeseen issues or deficiencies in an existing compliance program.

Vigilant is committed to continue providing a hands on, customized, and best-in-class service model so you can focus on your business goals for 2024 while managing your compliance risk.

Contact Us