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The SEC has released its enforcement results following the conclusion of its 2023 fiscal year at the end of September. The Commission’s release highlighted specific examples among the nearly 800 cases filed against firms and individuals for violations of US federal securities laws. And while the Commission collected nearly $5 billion in financial remedies, only $1 billion was returned to harmed investors.
The SEC’s release highlighted cases we’ve discussed before, such as settlements with firms for recordkeeping violations related to electronic communications, and cases brought against service providers. We also continue to see cases brought against crypto asset exchanges.
Interestingly, underlying themes in the Division of Enforcement have emerged related to oversight of the securities markets – whether related to Goldman Sach’s alleged failure to provide accurate blue sheet trading data, Citadel Securities violations of Reg SHO or Merrill Lynch for failing to file suspicious activity reports. These actions remind us of the importance of compliance and that the SEC will hold participants and gatekeepers accountable for oversight.
The SEC also touted a record-setting year for whistleblower rewards with nearly $600 million in awards paid. Nearly half was awarded to a single whistle-blower for providing credible information related to securities laws violations. Not surprisingly, the Commission noted a 13 percent increase in tips, complaints and referrals from the public.
Compliance officers who review the Enforcement Division results should consider these themes and the types of cases brought each year. If your firm engages in an activity that has been the subject of litigation, a review of the complaints filed by the Commission can provide you with a treasure trove of “Dos and Don’ts” if you want to avoid a similar fate. Additionally, firms with a strong culture of compliance are less likely to be on the receiving end of a whistleblower complaint.
Finally, as noted above, the Commission’s enforcement actions over the prior year have not necessarily correlated to investor harm. This means that even if no investor harm has occurred, the Division of Enforcement is still strictly enforcing and penalizing firms for violations of securities laws, even without intent. These penalties are intended to be a deterrent to misconduct. However, compliance officers and firm principals should take note and use this as an opportunity to enhance your firm’s operations and compliance programs. An investment in compliance today could prevent enforcement actions later.
