SEC Touts 2024 Enforcement Results
Commentary by Steven Lofchie
The SEC reported enforcement results for Fiscal Year 2024, highlighting a decline in the total number of enforcement actions year over year, but a record amount in financial remedies. (See Addendum, FY24 Enforcement Statistics.)
The Division of Enforcement reported 583 enforcement actions which represented a 26 percent decline in total enforcement actions compared to FY 2023. The Division said it secured over $8.2 billion in financial remedies, including $6.1 billion in disgorgement and prejudgment interest and $2.1 billion in civil penalties. The Division noted that 56 percent of the total was "attributable to a monetary judgment obtained following the SEC's jury trial win against Terraform Labs and Do Kwon, who were charged with one of the largest securities frauds in U.S. history." In addition, the Division said it "obtained orders barring 124 individuals from serving as officers and directors of public companies, the second-highest number of such bars obtained in a decade."
The SEC highlighted its efforts to (i) credit market participants who practice proactive compliance; and (ii) address widespread noncompliance as to off-channel communication, the marketing rule, insider trading and whistleblower protection. The SEC underscored the importance of its whistleblower program, which received over 24,000 tips and issued $255 million in awards. The agency also cited standout cases involving fraud, individual accountability, public company misstatements and market abuse.
The SEC said the Division saw "heightened investor risk from emerging technologies and cybersecurity incidents and from market participants using social media to exploit elevated investor interest in emerging investment products and strategies" in 2024. The Division said it "kept pace" by investigating noncompliance and false or misleading disclosures involving artificial intelligence, social media, cybersecurity, crypto, and more." The agency further highlighted that its "off-channel communications" initiative resulted in charges against more than 100 firms and more than $2 billion in penalties.
Commentary
Part of the SEC's boast, in the first paragraph of its press release, is that it obtained $8.2 billion in financial remedies, "the highest amount in SEC history." While it noted (in the second paragraph) that 56 percent of that amount was in connection with an enforcement action against Terraform Labs, a fraudulent purveyor of a cryptocurrency, the agency did not mention, as has been reported by Reuters and others, that "[t]he SEC will collect little, if anything, on that settlement amount, because it agreed to be paid only after Terraform satisfies crypto loss claims as part of its bankruptcy wind-down." In short, the enforcement results are exaggerated in a manner that would seem not to be permissible if a regulated issuer had described its earnings in the same way.
The SEC puts much of its public relations focus on its role as an enforcer. As a result, the SEC overemphasizes its role as enforcement agency in contrast to its role as regulator. Perhaps a little more attention should be paid to considering what regulatory burdens might be amended to benefit the economy.