Many were anticipating an enforcement crackdown by the Securities and Exchange Commission (SEC) in the first full fiscal year under chair Gary Gensler and enforcement director Gurbir Grewal, and those expectations were certainly met
The SEC chose to highlight actions against 16 broker-dealers and one affiliated investment adviser for failures to maintain and preserve certain text message communications.
In fiscal year 2022, the SEC recovered its highest recorded sum of monetary penalties—US$6.4 billion in civil penalties, disgorgement and prejudgment interest. This was almost double the US$3.9 billion collected in fiscal year 2021, and while the volume of enforcement actions was lower than during pre-pandemic years, 2022 also saw a 9 percent increase over the prior fiscal year.
Of this record haul, US$2.8 billion was attributable to public company and subsidiary actions, a full US$900 million higher than in the previous year, per an analysis by Cornerstone Research. And in another record, almost all of the 75 public company and subsidiary defendant settlements during this period involved a monetary penalty, according to an analysis by Cornerstone Research. Of the 3 percent that were not fined, the SEC reported that the entity had cooperated in about two-thirds of these cases. These results call into question the value of cooperation under the SEC's current administration.
In terms of the highest number of actions taken, investment advisers and investment companies were the primary target, with 174 cases, followed by broker-dealers, with 132 actions.
In yet another first for the agency, charges were brought against a registered investment adviser for failing to disclose a conflict of interest arising from its staff's ownership of the sponsors of special purpose acquisition companies (SPACs) being pitched as investment products.
A clear message
It came as no surprise that, in its enforcement round-up for the year, the SEC chose to highlight actions against 16 broker-dealers and one affiliated investment adviser for failures to maintain and preserve certain text message communications. These settlements alone were valued at about US$1.2 billion.
This has been a point of focus for the securities watchdog, which is concerned about the use of unauthorized personal mobile devices for off-channel private communications, in violation of federal securities laws. The move is a warning shot for firms engaged in these behaviors and those failing to put in place adequate policies to prevent such abuses.
Crypto enforcement
Cryptocurrency cases also picked up the pace, with the SEC drawing attention to its first action against a crypto lending firm and an insider trading case involving digital assets. These are just the tip of the iceberg.
In 2022, the agency announced plans to nearly double the headcount of the Enforcement Division's Crypto Assets and Cyber Unit, previously simply known as the Cyber Unit. And, in December 2022, charges were brought against Samuel Bankman-Fried for "orchestrating a scheme to defraud equity investors in FTX Trading Ltd. (FTX), the crypto trading platform of which he was the CEO and co-founder"—a headline-grabbing incident and one surely to keep the SEC's crypto enforcement activities in the limelight in the months ahead.
SEC Chair Gary Gensler has certainly followed through on his promise to lead a more aggressive SEC. The agency has not only committed to pursuing violations wherever and however they occur, the SEC Enforcement Director Gurbir Grewal also testified in 2022 that he sees "robust enforcement, robust remedies, and robust compliance" as a priority.
The writing is very much on the wall. The SEC broke a lot of records in 2022 and there is every possibility it will do so again in 2023.
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