SEC Enforcement Activity Against Public Company Defendants

Executive Summary

  • This report analyzes data in the Securities Enforcement Empirical Database (SEED), a collaboration between the NYU Pollack Center for Law & Business and Cornerstone Research. SEED is an online resource that provides data on SEC actions filed against defendants that are public companies traded on major U.S. exchanges.1 This report focuses on actions initiated between fiscal years 2010 and 2015.
  • The number of new SEC enforcement actions rose, from 681 in FY 2010 to 807 in FY 2015. This increase was fueled by a record level of independent actions. In contrast, the percentage of follow-on administrative proceedings decreased between FY 2013 and FY 2015. The number and percentage of actions against public company defendants has remained relatively constant.
  • Alleged violations of either Issuer Reporting and Disclosure provisions of the securities laws or the Foreign Corrupt Practices Act (FCPA) accounted for 85 percent of the SEC actions filed against public company defendants in FY 2015.
  • The Commission’s increased use of administrative proceedings for enforcements against public company defendants is taking place against the backdrop of a growing number of constitutional challenges to the SEC’s in-house actions.
  • In FY 2015, more than 80 percent of public company defendants settled concurrently with the filing of the action. Concurrent settlements in civil actions dropped substantially while concurrent settlements in administrative proceedings increased.
  • Total monetary penalties and disgorgements imposed on public company defendants dropped from $1,254 million in FY 2014 to $547 million in FY 2015.
  • Following the passage of the 2010 Dodd-Frank Act, which enabled the SEC to seek monetary penalties against an array of defendants in administrative proceedings, the majority of large penalties and disgorgements imposed on public company defendants have occurred in administrative proceeding cases.

Key Trends

  • The total number of SEC enforcement actions in FY 2015 represented a 7 percent increase compared to the preceding record-breaking fiscal year (2014),3 and was 10 percent above the median for fiscal years 2010 through 2015.
  • From FY 2010 to FY 2015, the majority of actions against public company defendants involved either Issuer Reporting and Disclosure or FCPA violations.
  • The SEC increasingly favored its administrative forum for public company defendants—the proportion of actions brought as administrative proceedings more than tripled from 21 percent in FY 2010 to 76 percent in FY 2015.
  • Although actions against public company defendants accounted for an average of 4 percent of the total number of SEC actions during FY 2010 through FY 2015, the public company defendants in these actions accounted for more than 18 percent of all SEC monetary penalties and disgorgements imposed over the same period.
  • The top 10 monetary penalties and disgorgements imposed on public company defendants from FY 2010 through FY 2015 accounted for almost 55 percent of the total collected by the SEC from public company defendants.

Number Of Filings – Key Findings

  • The total number of enforcement actions initiated by the SEC generally increased over the past six fiscal years. During this period, the SEC initiated a median of 735 actions per year with the total number of enforcement actions trending upward beginning in FY 2014 to a record 807 actions in FY 2015.
  • FY 2015 represented a 7 percent increase compared to the preceding fiscal year (2014), and was 10 percent above the FY 2010 through FY 2015 median.
  • While the number of SEC enforcement actions has increased overall since FY 2010, the number of actions against public company defendants remained relatively stable.

SEC Enforcement Activity

In FY 2015, for the first time the SEC divided its reported enforcement actions into three categories: (1) independent enforcement actions, (2) follow-on administrative proceedings, and (3) delinquent SEC filings.5 Follow-on administrative proceedings are actions used to impose additional sanctions against individuals, such as bars from practicing, based on prior litigated misconduct.6 The SEC filed “independent actions” for “violations of the federal securities laws”—that is, actions that were not delinquent filings or follow-on administrative proceedings.

Key Findings

  • The increase in the number of SEC actions from 676 in FY 2013 to 807 in FY 2015 was fueled by an increase in the number of independent actions, which rose to a record high of 507 in FY 2015.8 In FY 2015, independent actions comprised 63 percent of enforcement actions filed.
  • At the same time, the proportion of follow-on administrative proceedings decreased from 30 percent of FY 2013 enforcement actions to 21 percent in FY 2015.
  • During fiscal years 2005–2012 the number of independent enforcement actions reported by the SEC ranged from 318 to 445.

SEC Enforcement Activity

Classification Of Allegations – Key Findings

  • Allegations against public company defendants since FY 2010 have concentrated on purported violations of Issuer Reporting and Disclosure provisions of the securities laws and the FCPA. Together these accounted for at least 85 percent of actions in five of the past six fiscal years.
  • Cases involving Issuer Reporting and Disclosure violations increased sharply following the July 2013 announcement of a new SEC initiative aimed at preventing and identifying improper or fraudulent financial reporting.10 In FY 2013 through FY 2015, these cases on average represented more than 65 percent of public company defendant actions.
  • FCPA cases reached more than 50 percent in FY 2011. In FY 2015, the percentage of actions with public company defendants facing FCPA allegations was consistent with the average level of the preceding five years (33 percent).

SEC Enforcement Activity

SEC Enforcement Venue – Key Findings

  • For fiscal years 2010 through 2013, the SEC brought more than 65 percent of its actions against public company defendants in civil court.
  • FY 2014 and FY 2015 saw a dramatic shift in the enforcement venue for public company defendants—the SEC’s venue of choice became its administrative court. At the same time, scrutiny surrounding the constitutionality of the SEC’s in-house court increased.
  • In FY 2015, the SEC brought 76 percent of its actions against public company defendants as administrative proceedings.

SEC Enforcement Activity

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