While the confirmation earlier this week that Mary Jo White will step down as SEC Chair at the end of the Obama administration raises interesting questions about the SEC’s possible future direction and priorities, the agency’s public company-related enforcement activities during the last fiscal year provide some very interesting insights about the SEC’s recent priorities. In an interesting November 15, 2016 report entitled “SEC Enforcement Activity Against Public Companies and Their Subsidiaries: Fiscal Year 2016” (here), the NYU Pollack Center for Law & Business and Cornerstone Research take a detailed look the SEC’s enforcement activity during the fiscal year ending on September 30, 2016. The report examines the agency’s record levels of enforcement activity involving public company defendants during the fiscal year.
As the SEC itself noted when it released its fiscal year enforcement report (here), the SEC filed a record total of 868 enforcement actions in the 2016 fiscal year, including a record 548 independent enforcement actions. The NYU and Cornerstone Research report notes that among this record number of enforcement actions were a record number of enforcement actions against public company-related defendants; during the 2016 fiscal year, the agency brought 92 actions against public company defendants, the highest number in the authors’ database.
Independent actions against all defendants have increased in the past four fiscal years, growing from 341 in the 2013 fiscal year to 548 in the 2016 fiscal year, representing an increase of 61 percent. The proportion of independent actions targeting public company-related defendants increased from 12 percent to 17 percent in that same period. The growth in actions against public-company related defendants outpaced the overall growth in independent actions during the period from fiscal year 2013 through fiscal year 2016. While independent actions overall grew 61 percent during that period, public-company related actions increased 130 percent.
Issuer reporting and disclosure remained the most common type of allegation involved in enforcement actions against public-company related defendants during the 2016 fiscal year, accounting for 26 percent of cases. As a result of an increased focus on the sector in the 2016 fiscal year, the agency brought the most cases ever involving investment advisors and investment companies. The 19 actions against public-company related investment advisors and investment companies surpassed the combined total (17) during the prior three fiscal years.
The report notes that since the 2010 passage of the Dodd-Frank Act, the SEC has “noticeably accelerated the rate at which it brings actions against public company-related defendants as administrative proceedings.” The SEC used the administrative forum for the “vast majority” of the independent actions in the 2016 fiscal year. The SEC brought 83 independent actions (90) percent against public company-related defendants as administrative proceedings in fiscal 2016, compared to only 34% of public company related actions in the 2010 fiscal year.
Most of the public company-related enforcement actions are resolve concurrently with the date of initiation. In fiscal year 2016, 97 percent of public company-related defendants resolved SEC actions the same day as they were initiated, compared with a median annual percentage of public company-related defendant concurrent settlements of 87 percent. In fiscal year 2016, all but three public company-related defendants settled concurrently with the filing of the action.
Three of the ten largest monetary settlements between fiscal year 2010 and fiscal year 2016 were reached in fiscal year 2016, with two requiring an admission of guilt. The three settlements accounted for over $1 billion of the $4 billion total monetary settlements during the 2016 fiscal year.
The report notes that the agency announced a formal cooperation initiative in January 2010. Since that time public company-related defendant settlements in which the agency noted the defendant’s cooperation have increased; in fiscal 2010, the agency noted the defendant’s cooperation in 23% of settlements, compared with 55% in fiscal 2016.
Overall, the agency’s track record between fiscal years 2010 and 2016 shows an increase in the number of enforcement actions and in increase in the number of actions involving public company-related defendants. It remains to be seen whether or not these patterns will continue once the new SEC Chair is in place.
SEC Whistleblower Program Likely to Continue: In the blog post earlier this week in which I reviewed the possible impact a Trump presidency will have on the business litigation environment (here), I conjectured that even if Trump makes substantial changes to the laws enacted in the Dodd-Frank Act, it seems unlikely that those changes would include the elimination of the Dodd-Frank whistleblower program. In a November 14, 2016 Law 360 article entitle “Big SEC Bounties Won’t Change with Trump” (here, subscription required), several different commentators are quoted as saying, in effect, that even if Trump makes wholesale changes to the Dodd-Frank Act, the whistleblower program is likely to survive. Several commentators even suggested that the whistleblower arguably even “dovetails” with Trump’s own views about financial regulation and his professed interest in seeing both Washington and Wall Street held accountable.
The Latest Evidence that the Threat of Litigation Outside the U.S is Growing: In numerous recent posts, I have noted that the threat of litigation outside the U.S. is changing rapidly. The latest illustration of how fast things are changing is Dan Harris’s November 14, 2016 post on his China Law Blog (here), in which he noted that China – yes, China – is becoming the preferred forum for IP litigation. The reason this is happening is that the recently overhauled Chinese courts move quickly and provide protections for goods entering and leaving China. I recommend reading the entire blog post, it is interesting.
For those of us who have spent our entire careers comfortably secure in the belief that the threat of litigation with the U.S. is the most important, and the threat of litigation outside the U.S. can largely be disregarded, this new world order is going to take some getting used to. Whether it is comfortable or not, we are all going to have get used to the idea that the threat of litigation outside the U.S. is real and growing.