SEC Division of Enforcement Annual Report

7 December 2017


On November 15, 2017 the U.S. Securities and Exchange Commission (SEC) Division of Enforcement released its FY 2017 Annual Report. The Co-Directors of the Division of Enforcement, Stephanie Avakian and Steven Peikin, affirmed the Division’s overarching principle that vigorous enforcement of the federal securities laws is critical to combat wrongdoing, to compensate harmed investors, and to maintain confidence in the integrity and fairness of our markets.  They also set out five core principles that guide the Division’s decision making and detailed some trends.

Five Core Principles of the SEC Division of Enforcement

  1. Focus on the Main Street Investor – The Enforcement Division agreed with SEC Chairman Jay Clayton’s comment that the Commission’s analysis of whether it is accomplishing its mission “starts and ends with the long-term interests of the Main Street investor.” The Division intends to continue to address the kinds of misconduct that traditionally have affected retail investors. Additionally, the Division of Enforcement believes the recently formed Retail Strategy Task Force will develop effective strategies to address harm to retail investors. The Division of Enforcement envisions the Task Force working closely with the SEC’s examination staff and the Office of Investor Education an Advocacy, as well as using the SEC’s data analytics capabilities to identify areas of risk to retail investors.
  2. Focus on Individual Accountability – The Co-Directors state the “vigorous pursuit of individual wrongdoers must be the key feature of any effective enforcement program.” As such, they believe sending a strong message through enforcement actions helps deterrence and strips wrongdoers of ill-gotten gains.
  3. Keep Pace With Technological Change – The Division has formed a specialized Cyber Unit designed to respond to new and emerging cyber-enabled misconduct with “purpose and vigor.” The attention to cyber-related issues by the SEC as whole has increased in recent years and therefore it should come as no surprise the Enforcement Division is now hiring experts in a broad range of cyber-related areas to combat these threats.
  4. Impose Sanctions That Most Effectively Further Enforcement Goals – The Enforcement Division states it does not believe in a formulaic or statistics-oriented approach, instead choosing to consider the package of remedies appropriate to the matter at hand. Nevertheless, the Co-Directors reiterated that sanctions are critical to driving behavior and the Division of Enforcement will continue to make use of the wide array of tools available to it when seeking penalties for misconduct.
  5. Constantly Assess the Allocation of the Division of Enforcement’s Resources – The Enforcement Division is the largest division at the SEC. The volume of potential violations is equally robust. The Co-Directors highlight the need to constantly assess the whether resources are being allocated to address the most significant market risks and towards the violators who pose the most serious threats to investors and market integrity.

2017 Actions & Results

Enforcement Actions Filed[1]

When looking at the quantitative metrics the Division of Enforcement believes it had a successful year. Overall the Enforcement Division filed fewer enforcement actions and obtained fewer judgements and orders in 2017 than in 2016. These figures are most likely a result of some stagnation and departures at the Commission in and around the 2016 Presidential election. Indeed the Annual Report cites the “transition in leadership” as a potential drag on additional activity. Another contributing factor to the lower activity cited is the conclusion of the Commission’s Municipalities Continuing Disclosure Cooperation Initiative which ended in 2016.

Breakdown of Classification of Actions[2]

Approximately ninety percent of the Commission’s standalone cases in 2017 concerned six topics.

Disgorgement and Penalties Ordered [3]

The total monetary relief ordered in 2017 declined slightly. This number had been increasing steadily in past years and may offer some insight into how the new leadership at the SEC views enforcement in terms of seeking less punitive penalties while focusing on disgorgement of ill-gotten gains.

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[1] Division of Enforcement Annual Report, 2017, Pg. 15

[2] Division of Enforcement Annual Report, 2017, Pg. 7

[3] Division of Enforcement Annual Report, 2017, Pg. 6

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