Tag: federal securities litigation

ICYMI: column from Matt Levine on SEC Enforcement’s “silly season”

After all the PubCo posts on the avalanche of SEC enforcement cases muscled into the last couple of days before the SEC’s fiscal year end, I thought this column in Bloomberg from Matt Levine might be of particular interest.  The relevant portion of the column, called the “SEC silly season,” discusses the apparent scramble by the SEC at the end of its fiscal year to bring as many enforcement actions as possible in response to “performance-reporting pressures,” that is, the pressures to make its stats to achieve optimal Congressional funding.  According to academic research cited in the column, that scramble is not just “apparent,” it’s real, and it has practical implications for enforcement behavior.  The research showed that the average number of cases filed in September “is almost double the average in other months,” and that the “spike is larger when case totals are behind pace to meet last year’s case total, which likely serves as a de facto performance benchmark.” The SEC achieves this fiscal-year-end increase, according to the research, “by changing its enforcement behavior related to substantive cases,” that is, through prioritization of less complex cases and imposition of more lenient penalties, including financial discounts, relative to other periods.  For example, the September cases are “significantly more likely to reference defendant cooperation and to only name companies as defendants, and are less likely to include a fraud allegation and to reference parallel criminal proceedings.” Accordingly, the authors found that the  “evidence is consistent with the SEC agreeing to more lenient settlement terms to increase case volume at fiscal year-end—an unintended consequence of performance reporting that undermines the SEC’s core values.” As the authors of the research suggest, might defendants familiar with this “regulatory inconsistency” be able to use it to their advantage?