SEC Enforcement Activity Stabilizes
On Nov. 2, 2018, the Securities and Exchange Commission (SEC) released its fiscal year 2018 enforcement statistics. There was significant speculation about whether the recent downward trend in the number of enforcement actions filed and the amount of money secured by the SEC would continue, with some speculating that it would. Those predicting a continued reduction in SEC enforcement activity were wrong.
During the final years of the Obama Administration, the SEC's enforcement activity rose to record levels. In fiscal year 2015, the SEC brought 807 enforcement actions and secured orders of disgorgement and penalties totaling $4.19 billion.1 In fiscal year 2016, the SEC brought 868 enforcement actions (an all-time record) and secured orders of disgorgement and penalties totaling $4.08 billion.2
The first year of the Trump Administration brought with it a significant reduction in the number of enforcement actions filed and the amount of money secured by the SEC. Indeed, in fiscal year 2017, the SEC brought only 754 enforcement actions (a 13 percent year-over-year reduction) and secured orders of disgorgement and penalties totaling only $3.79 billion (a seven percent year-over-year reduction).3 Despite speculation to the contrary, that downward trend did not last for long. In fiscal year 2018, SEC enforcement activity rebounded, with the SEC bringing 821 enforcement actions and securing orders of disgorgement and penalties totaling $3.95 billion.4
While the level of SEC enforcement activity in 2018 was similar to that of the final years of the Obama Administration, the focus of that activity was not. In its 2017 annual report, the SEC articulated five criteria by which it would assess its performance going forward: (1) focus on the Main Street investor; (2) focus on individual accountability; (3) keep pace with technological change; (4) impose remedies that most effectively further enforcement goals; and (5) constantly assess the allocation of resources.5 In 2018, the focus of the SEC's enforcement activity changed as it launched new initiates aimed at two of those criteria. First, in line with its focus on the Main Street investor, the SEC formed its Retail Strategy Task Force. With the help of its Retail Strategy Task Force, the SEC brought numerous enforcement actions against corporations and individuals whose actions had a direct impact on retail investors.6 Second, in order to keep pace with technological change, the SEC established its Cyber Unit. Demonstrating that the SEC is, in fact, keeping up with changes in technology, in 2018, the Cyber Unit brought the SEC's first case against a public company for failing to properly inform investors about a cyber breach.7 Further demonstrating that the SEC is keeping pace with technological advancements, by the close of fiscal year 2018, the SEC had brought over a dozen enforcement actions involving Initial Coin Offerings and digital assets.8 Now that the SEC's Retail Strategy Task Force and its Cyber Unit are fully operational, the SEC's shift in enforcement focus is complete.
While there may have been a brief dip in SEC enforcement activity during 2017, the 2018 enforcement statistics do not support the theory that President Trump's SEC is interested in regulatory détente. Now that President Trump's SEC has had time to reorient its focus and get its initiatives up and running, it is quite possible that SEC enforcement activity during the remainder of the Trump Administration will remain at historical highs.