In its second annual report, the SEC Enforcement Division (the "Division") highlighted significant enforcement actions filed in FY 2018, discussed key initiatives and described ongoing agency priorities.
The Division reported a "high level" of enforcement activity, citing 821 actions and over $3.9 billion in disgorgement and civil penalties in FY 2018. The Division claimed success on a qualitative basis, highlighting "significant actions" against important market participants, protecting retail investors, obtaining meaningful remedies and addressing emerging risks. The Division also identified significant challenges, including (i) staffing constraints due to budgetary limitations, (ii) the diminished ability to obtain disgorgement in long-running frauds following the Supreme Court's decision in Kokesh v. SEC and (iii) the divergence of resources to reopen older trial matters following the constitutional challenge to SEC-appointed administrative law judges in Lucia v. SEC.
Division Co-Directors Stephanie Avakian and Steven Peikin also shared the five "core principles" for the Division - unchanged since its last annual report - which include: (i) focusing on the Main Street investor, (ii) focusing on individual accountability, (iii) keeping pace with technological change, (iv) imposing sanctions that most effectively further enforcement goals and (v) assessing the allocation of Division resources.
Commentary / Kyle DeYoung
In a big surprise to most people who follow these things, the total number of enforcement actions (both overall and standalone) increased significantly in FY2018 from FY2017, and compared favorably to the SEC's record number of cases brought in FY2016. At the same time, the number of issuer reporting and disclosure actions - which are often the biggest and most complex cases the SEC brings - went down significantly in FY2018 from FY2017 and FY2016. It will be worth watching to see if this decline continues in FY2019 as the Division continues its focus on retail investors and cyber issues.
The annual report was also noteworthy in its frank discussion of the ongoing challenges the Division is facing. While the Division regularly mentions its limited resources, it was striking to see it acknowledge that its investigative and litigation personnel is down 10% and that diverting resources to litigate administrative proceedings reopened as a result of the Lucia decision is causing significant issues. It will be a challenge for the Division to maintain its quantitative and qualitative success in FY2019 if the resource issues are not resolved.
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