Financial services firms are more often the focus of Securities and Exchange Commission enforcement actions than their parent companies, said a report issued Tuesday by New York University School of Law and Cornerstone Research.
The first half of fiscal year 2016 ended Sept. 30 also saw the highest percentage of actions and concurrent settlements, with 98% settling the same day an action was filed, according to the report, which is based on the Securities Enforcement Empirical Database of SEC enforcements against public companies, plus recently added data on their subsidiaries. The additional data on subsidiaries nearly doubles the number of regulatory actions taken.
Researchers found that the SEC brought 84 actions against public companies and their subsidiaries in fiscal year 2015, compared with 55 actions in the previous fiscal year. In the first half of fiscal year 2016, the SEC filed 43 new enforcement actions, many of them associated with a recent SEC focus on municipal securities.
Of the fiscal 2015 actions, 52 were against a related subsidiary, compared to an annual average of 18 in the five previous years. Between fiscal years 2010 and 2014, twice as many actions were filed against public companies. In fiscal year 2015 and the first half of 2016, the combined number of actions against subsidiary defendants increased 49%.
Researchers also found continued use of in-house administrative proceedings by the SEC, with 88% of actions so far in the first half of fiscal year 2016, compared with 33% of actions in all of 2010.
“When we added subsidiaries (of public companies) we find that this shift, if anything, seems to be increasing. With financial firms, it’s even more dramatic,” said NYU law professor Steven Choi, director of the Pollack Center for Law & Business, in an interview.
Unlike their parent companies, which typically have a single enforcement action on record, “financial firm (subsidiaries) show up repeatedly as defendants in the database,” according to Mr. Choi, who said that will be a focus of future research, along with SEC trends when it comes to charging individual executives in companies.
The report is available on Cornerstone’s website.