The SEC’s enforcement activity so far this fiscal year trails the record levels in the 2015 fiscal year. According to a recent report from Cornerstone Research (here), the SEC’s enforcement activity through the end of the fiscal third quarter (on June 30, 2016) is eight percent below the activity levels during the same period in FY 2015, largely as a result of an activity decline in the third quarter. At this point, even if the agency is active in the fourth fiscal quarter, it seems unlikely that by the end of the fiscal year on September 30, 2016 that the agency’s enforcement activity will catch up to the prior year.
According to the report, the agency filed 508 enforcement actions through the first three quarters of the current fiscal year, which is eight percent below the 555 enforcement actions the agency filed during the first three quarters of FY 2015. The decline in enforcement activity this fiscal year is largely a result of the “sharp decrease” in the number of actions filed in the third quarter. In the quarter ending June 30, 2016, the agency filed only 160 enforcement actions, compared to 238 in the third quarter of the 2015 fiscal year.
Though the agency historically files more actions in the fourth quarter, it is unlikely that the agency will file enough actions in the fourth quarter for the agency’s FY 2016 enforcement activity to make up the lag between the current fiscal year and fiscal year 2015. To catch up the difference, the agency would have to file over 299 actions in the fourth fiscal quarter. As the report notes, “this would be an unprecedented level of activity – the highest recorded fourth quarter activity in the past 15 years was 265 actions filed in Q4 FY 2014.”
If the agency were simply to maintain its enforcement activity pace for the fourth quarter, the agency would have filed 735 enforcement actions in the current fiscal year. While this annual total would be below FY 2015’s record levels and below 2014’s total of 755 enforcement actions, it would be well above 2013’s 676 enforcement actions and about level with 2012’s 734 enforcement actions, and 2011’s 735 enforcement actions. In other words, while the agency’s enforcement activity is on track for year-end levels below the record-setting activity levels in 2014 and 2015, the enforcement activity levels are otherwise more or less consistent with activity levels in recent prior years.
Accounting-related matters accounted for 15 percent of the enforcement actions the agency filed in the first three quarters of the current fiscal year, compared with 14 percent during the first three fiscal quarters of 2015. The agency continues to file the vast majority of enforcement actions as administrative proceedings rather than as civil actions. In the first three quarters of the current fiscal year, 81 percent of the actions were filed as administrative proceedings rather than as fiscal actions.
In its reporting of its enforcement activity, the agency breaks out what it calls “follow-on administrative proceedings,” which are not new cases but rather are “administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.”
The SEC filed 115 follow-on administrative proceedings in the first three quarters of fiscal year 2016, representing 23% of total enforcement activity, compared to 16% in the first three quarters of 2015, but well below the 40% levels for the first three quarters of 2014 and the 34% levels for the first three quarters of 2013.
The SEC filed fewer new enforcement actions in the first three quarters of 2016 compared to the same period of 2015. The SEC filed 393 new enforcement actions in the period 1Q-3Q this year, compared to 466 in the first three quarters of 2015, representing a decline of 16 percent.
Of the new actions filed in the first three quarters this year, 94 were against delinquent filers, an increase of seven percent relative to the same period in 2015.
Excluding the actions against delinquent filers, the SEC filed only 299 new independent enforcement actions involving violations of the federal securities laws during 1Q-3Q 2016, compared to 278 during the first three quarters of 2015, representing a decline of 21 percent. However, the 2016 YTD levels are still well above the levels for these actions during the equivalent periods of 2014 (222) and 2013 (197).