Misconduct that puts investors at risk continued to be a focus for the Securities and Exchange Commission's Division of Enforcement in fiscal 2019, according to its annual report released Wednesday.
Despite hiccups, including an appropriation freeze for part of the year and a Supreme Court ruling limiting the time the agency has to seek disgorgement, the SEC brought 862 enforcement actions, compared with 821 in the previous year and 754 in fiscal 2017.
This year, the SEC obtained judgments and orders totaling more than $4.3 billion in disgorgement and penalties, including $1.2 billion returned to investors. Those totals were $3.9 billion and $3.8 billion in the previous two years.
The enforcement actions, including 526 standalone ones, covered numerous issues, including issuer disclosure/accounting violations; auditor misconduct; investment advisory issues; securities offerings; market manipulation; insider trading; and broker-dealer misconduct. SEC officials said their core enforcement principles are focusing on the Main Street investor, individual accountability, keeping up with technological change such as cybersecurity and crpytocurrency, imposing effective remedies and allocation of resources.
One area of particular focus was misconduct involving investment professionals and retail investors, including higher fees charged, which led the division to launch its Share Class Selection Disclosure Initiative in February 2018. Since then, the Initiative "has achieved extraordinary results," the report said, with 79 investment advisers ordered to return more than $135 million to affected investors by September 2019.
"The numbers confirm that enforcement is still a priority for the SEC. The numbers are pretty consistent," said former SEC official John Berry, a partner with Munger, Tolles & Olson in Los Angeles. "The share-class initiative took a lot of resources, but they still did a lot. It just shows how much the SEC and (Chairman Jay) Clayton care about the retail investors and making sure that mutual funds are doing the right thing when it comes to fees," Mr. Berry said.
The report noted that the Supreme Court's June 2017 decision in Kokesh v. SEC continues to adversely impact the agency's "ability to disgorge and return funds to investors injured by long-running frauds, such as Ponzi schemes, that often directly impact retail investors." Imposing a five-year statute of limitations "has caused the commission to forgo approximately $1.1 billion dollars in disgorgement in filed cases. The actual impacts of Kokesh are likely far greater than this number reflects, however, because — since the Kokesh decision — the division has shifted its resources to those investigations (that) hold the most promise for returning funds to investors," the report said.
