Over the last few years, the SEC has been criticized for (1) failing to “consistently and aggressively enforce the securities laws and protect investors and the public,”[1] (2) obtaining sanctions that amount to only a slap on the wrist against major financial institutions,[2] (3) settling rather than taking big banks to trial,[3] 4) failing to name individuals in enforcement actions,[4] (5) failing to require that companies admit guilt,[5] (6) granting waivers from the collateral consequences of enforcement actions,[6] and, most recently, (7) failing to prevent a prominent hedge-fund manager from getting back into the hedge-fund business.[7]
We evaluate below whether the facts support those criticisms. We find that they support the opposite conclusions.
By any objective measure, the SEC’s enforcement program is aggressive, and the government’s crackdown on banks is unprecedented in its severity. Public perceptions of the SEC have improved in recent years, but are still well below the pre-financial crisis levels.[30] It’s unfortunate if those perceptions are shaped not by the facts but by criticisms inconsistent with the facts.
[2] Ed Beeson, “Warren Blasts SEC, DOJ Over ‘Slap on the Wrist’ Enforcement,” Law360 (Apr. 15, 2015), http://www.law360.com/articles/643593/warren-blasts-sec-doj-over-slap-on-the-wrist-enforcement.
[3] “Senator Elizabeth Warren Embarrasses Bank Regulators at First Hearing!,” YouTube (Feb. 16, 2013), https://www.youtube.com/watch?v=O_riLcZicZA.
[4] “Rigged Justice: 2016: How Weak Enforcement Lets Corporate Offenders Off Easy,” (Jan. 2016), http://www.warren.senate.gov/files/documents/Rigged_Justice_2016.pdf.
[6] Kevin McCoy, “Warren Seeks Public Hearing on Bank Waivers,” USA Today (May 25, 2015), http://www.usatoday.com/story/money/2015/05/25/elizabeth-warren-criticizes-bank-waivers/27911773/.
[7] Andrew Ackerman, “Warren Criticizes SEC for Allowing Steven Cohen’s Return to Hedge Funds,” The Wall Street Journal (Apr. 21, 2016), http://www.wsj.com/articles/warren-criticizes-sec-for-allowing-steven-cohens-return-to-hedge-funds-1461229204.
[8] SEC Press Release, “SEC Announces Enforcement Results for FY 2015,” (Oct. 20, 2015), https://www.sec.gov/news/pressrelease/2015-245.html.
[9] “Independent actions” exclude the 342 actions that were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.
[10] See “Year-By-Year Monetary Sanctions in SEC Enforcement Actions,” https://www.sec.gov/news/newsroom/images/enfstats2.pdf.
[11] See Jon Eisenberg and Irene C. Freidel, “5 Takeaways from DC CIrc. Arguments in 1st CFPB Appeal,” Law360 (Apr. 15, 2016); Soyong Cho and Ted Kornobis, “’A Bridge Too Far:’ CFPB’s Authority Grab Rejected by Federal Judge,” K&L Gates Consumer Financial Services Watch,” http://www.consumerfinancialserviceswatch.com/2016/04/a-bridge-too-far-cfpbs-authority-grab-rejected-by-federal-judge/.
[12] Yuka Hayashi, “Consumer Financial Protection Bureau Roughly Doubled Caseload in 2015,” The Wall Street Journal (Jan. 11, 2016), http://www.wsj.com/articles/consumer-financial-protection-bureau-roughly-doubled-caseload-in-2015-1452551403.
[13] See footnote 2 supra.
[14] “SEC Enforcement Actions: Addressing Misconduct that Led to or Arose from the Financial Crisis,” (through Jan. 13, 2016), https://www.sec.gov/spotlight/enf-actions-fc.shtml.
[15] Committee on Capital Markets Regulation, “Committee Releases Q1 2016 Financial Penalties Data,” (Apr. 15, 2016), http://capmktsreg.org/news/committee-releases-q1-2016-financial-penalties-data/.
[17] “Senator Elizabeth Warren Embarrasses Bank Regulators at First Hearing!,” YouTube (Feb. 16, 2013), https://www.youtube.com/watch?v=O_riLcZicZA.
[18] Michael Klausner and Jason Hegland, “SEC Practice in Targeting and Penalizing Individual Defendants,” Harvard Law School Forum on Corporate Governance and Financial Regulation (Sept. 3, 2013), https://corpgov.law.harvard.edu/2013/09/03/sec-practice-in-targeting-and-penalizing-individual-defendants/.
[19] “SEC Enforcement Actions: Addressing Misconduct that Led to or Arose from the Financial Crisis,” (through Jan. 13, 2016), https://www.sec.gov/spotlight/enf-actions-fc.shtml.
[20] SEC, “FY 2017 Congressional Budget Justification,” at 59 (Feb. 9, 2016), https://www.sec.gov/reportspubs/budget-reports/about-reports-secfy17congbudgjustshtml.html.
[21] See Richard A. Rosen and David S. Huntington, “Waivers from Securities Law Disqualifications,” INSIGHTS (Aug. 2015).
[22] Chair Mary Jo White, “Understanding Disqualifications and Waivers Under the Federal Securities Laws,” (Mar. 12, 2015), https://www.sec.gov/news/speech/031215-spch-cmjw.html.
[24] Andrew Ackerman, “Warren Criticizes SEC for Allowing Steven Cohen’s Return to Hedge Funds,” The Wall Street Journal (Apr. 21, 2016), http://www.wsj.com/articles/warren-criticizes-sec-for-allowing-steven-cohens-return-to-hedge-funds-1461229204.
[25] In the Matter of Steven A. Cohen, Investment Advisers Act Rel. Non. 3634 (July 19, 2013), https://www.sec.gov/litigation/admin/2013/ia-3634.pdf.
[26] United States v. Newman, 773 F.3d 438, 452 (2d Cir. 2014), cert. denied, 136 S.Ct. 242 (2015).
[27] See Jon Eisenberg, “How United States v. Newman Changes the Law,” Harvard Law School Forum on Corporate Governance and Financial Regulation (May 3, 2015), https://corpgov.law.harvard.edu/2015/05/03/how-united-states-v-newman-changes-the-law/.
[28] See Nate Raymond, “SAC’s Martoma Seeks Reversal of U.S. Insider Trading Conviction,” Reuters (Oct. 28, 2015), http://www.reuters.com/article/us-usa-insidertrading-martoma-idUSKCN0SM2HZ20151028.
[29] In the Matter of Steven A. Cohen, Investment Advisers Act Release No. 4307 (Jan. 8, 2016).