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Editorial

SEC must make enforcement a real priority

The number of enforcement actions filed by the Securities and Exchange Commission declined in fiscal 2017 compared with fiscal 2016, a new report issued by the agency showed.

The agency must not let the result become a habit. The markets need an attentive and active police force prowling the byways to ensure securities laws are obeyed and investors are protected from those who might take advantage of them.

The total number of enforcement actions declined to 754 from 868 in 2016, and penalties and disgorgement declined to a total of $3.789 billion from $4.083 billion in the same period, with penalties declining to $832 million from $1.273 billion.

There is an explanation for part of the decline in actions. Eighty-four actions were taken in 2016 under the commission's Municipalities Continuing Disclosure Cooperation initiative, a "voluntary self-reporting program that targeted material misstatements and omissions in municipal bond offering documents." The program ended in fiscal 2016.

But even accounting for the end of the MCDC initiative, the total still declined to 754 in fiscal 2017 from 784 in 2016.

Perhaps the vacuum of leadership between the contentious election and the installation of new Chairman Jay Clayton on May 4 affected the work rate while the SEC staff awaited any indication of changes in enforcement direction. That's not an unnatural reaction, but if so, it must not be allowed to continue.

A more troubling explanation would be a more relaxed approach to regulation and enforcement, which some perceive to be Republican policy.

There are hopeful signs as the number of actions increased in the areas of issuer reporting, audit and accounting, securities offerings and market manipulation.

Perhaps the decline in some of the measures of the SEC's productivity is a temporary blip. If it is not, the economy will be ill-served if the financial markets police force is allowed to relax its vigilance — and investors suffer as a result.

The SEC is still awaiting the Senate confirmation of Robert Jackson, a Columbia Law School professor, and Hester Peirce, a former Senate staff member, as additional commissioners. They might help to get the enforcement division back up to speed.n