SEC’s 2016 Activity Breaks Enforcement and Whistleblower Records

Earlier this month, the SEC (the “Agency”) announced that it initiated a record-breaking 868 enforcement actions in fiscal year 2016. This figure – along with other milestones – reflect the Agency’s commitment to expanding the scope and reach of its enforcement programs to pursue an array of federal securities law violations.

The SEC attributed its record-setting numbers to, among other things, the use of new data analytics to discover fraud, an increased focus on novel and significant actions (such as the Agency’s recent jury trial victory against the City of Miami and its former budget director), and increased attention on attorneys, investment advisers, auditors, and other gatekeepers.

The SEC release noted four more record highs. There were 548 standalone or independent actions (or cases initiated by the SEC that were not previously heard in court), 160 cases against investment advisers and investment companies, including 98 standalone actions, and 21 Foreign Corrupt Practices Act cases. The Agency also awarded $57 million to whistleblowers in 2016 – the most distributed in a single year – including the second-highest-ever whistleblower award of $22 million, which caused total historical payouts under the whistleblower program to exceed $100 million.

Other metrics have not kept pace. The Agency announced that in 2016, it initiated 195 “follow-on administrative proceedings,” or administrative proceedings initiated after an injunction or criminal conviction had already been issued against the respondent. This figure is significantly lower than the recent high of 232 follow-on administrative proceedings initiated in 2014. This decrease may be attributed to increased controversy surrounding the use of such proceedings. Moreover, delinquent filing actions remained steady, at 125 actions in 2016. Finally, despite the marked increase in enforcement actions, the released metrics show that the total amount of disgorgements and penalties has stayed fairly steady over the last three years. Disgorgement and penalties amounted to “over $4 billion” in 2016, compared to $4.19 billion in 2015 and $4.16 billion in 2014.

These statistics reflect that the SEC is making good on its promise to bring more enforcement actions, particularly insider trading, FCPA, and gatekeeper actions. They further reflect that the Agency remains committed to its whistleblower program and the use of administrative proceedings (despite the defense bar’s misgivings about this forum). However, the vaguely reported 2016 disgorgement and penalty data – a departure from the Agency’s typical practice of providing exact disgorgement and penalty figures – suggests that the SEC is not securing the victories and settlements necessary to keep pace with the increase in initiated enforcement actions. This raises the question of whether the agency is improperly focusing on the quantity of cases brought, rather than the quality of cases.