The SEC has announced its fiscal 2022 Enforcement stats, which hit new records. According to the press release, during the year, the SEC filed 760 total enforcement actions, representing a 9% increase over the prior year.  That total included 462 new, or “stand-alone,” enforcement actions, which “ran the gamut of conduct, from ‘first-of-their-kind’ actions to cases charging traditional securities law violations.”  The SEC also recovered a record $6.4 billion in civil penalties, disgorgement and pre-judgment interest in SEC actions, an increase of 68% from $3.8 billion in the prior year. Civil penalties, at $4.2 billion, were also the highest on record.  The press release emphasized that the increase in penalties is intended to “deter future misconduct and enhance public accountability.” In a number of cases, the SEC “recalibrated penalties for certain violations, included prophylactic remedies, and required admissions where appropriate” to make “clear that the fines were not just a cost of doing business.” According to Director of Enforcement Gurbir Grewal, the SEC doesn’t “expect to break these records and set new ones each year because we expect behaviors to change. We expect compliance.” Interestingly, disgorgement, at $2.2 billion, declined 6% from last year. As reported by the WSJ, Grewal, speaking at a recent conference, highlighted the fact that the SEC imposed more penalties than disgorgements, which, in his view, “demonstrated that ‘the potential consequences of violating the law are significantly greater than the potential rewards.’… He added that the SEC ordered more than twice as much in disgorgements as it did in penalties for the five fiscal years before the last one.  ‘So while disgorgement was slightly down from the prior year…it is the first time that the amount ordered to be paid in penalties has been double the amount ordered to be paid in disgorgement,’ he said. ‘The increased penalty-to-disgorgement ratio nonetheless demonstrates that the risk-reward calculation is not what it was even a few years ago.’” 

The press release also highlighted the high priority the SEC places on public company disclosures, with Enforcement focusing on the pursuit of issuers (and their employees) that make materially inaccurate disclosures, as well as auditors “who violate applicable laws and rules in connection with such disclosures.”  The SEC cited as examples charges against Boeing and its former CEO for misleading statements issued after the crashes of two 737 MAX airplanes and charges against Compass Minerals International.

In addition, the SEC stressed the importance of individual accountability, noting that, in fiscal 2022, more than two-thirds of the SEC’s stand-alone enforcement actions involved at least one individual defendant or respondent, including executives such as the former CEO of Boeing.  The SEC also highlighted the use of SOX 304 clawbacks against several senior executives at public companies, which required them to “return bonuses and compensation following misconduct at their firms, even though the executives were not personally charged with the misconduct.”

The SEC has also pursued several cases relating to inadequate cybersecurity and ESG, applying “time-tested principles concerning materiality, accuracy of disclosures, and fiduciary duty.” Among the cases this year was an action against Vale S.A., a publicly traded (NYSE) Brazilian mining company and one of the world’s largest iron ore producers.

For fiscal 2022, whistleblower awards were the second highest on record, both in the number of individuals receiving awards (103 awards) and the total dollar amounts awarded ($229 million).

According to the press release, the SEC protects whistleblowers by “pursuing individuals or entities who take steps to impede, or retaliate against them for, their whistleblowing,” including charges for overly restrictive confidentiality agreements (see, an earlier case,  this PubCo post) and for “impeding an employee from communicating with the SEC regarding potential misconduct.”

The press release also addressed investigations in parallel with criminal law enforcement, trial wins, use of the enforcement toolkit (including data analytics), meaningful cooperation, gatekeepers, crypto, private funds, regulated entities, market abuses, complex products, public finance abuse, the Foreign Corrupt Practices Act and penalties, undertakings and admissions.  Attached to the press release is a 20-page addendum that identifies each action during the period.

Posted by Cydney Posner