Fines and other recoveries in SEC enforcement action hit record levels during the agency’s fiscal year ended September 30, 2020, even as pandemic-related work closures dampened the number of enforcement actions the agency was able to file, according to the SEC Enforcement Division’s annual report released Monday. The SEC scored a record total of $4.6 billion in recoveries, largely as a result of big fines and disgorgements in a few large matters, while the 405 new standalone enforcement actions the agency filed was the lowest number in six years. The Enforcement Division’s annual report can be found here. The agency’s November 2, 2020 press release about the report can be found here.
The agency brought a total of 715 enforcement actions in FY 2020, consisting of 405 standalone enforcement actions; 180 “follow on” administrative actions; and 130 proceedings to deregister delinquent public company filers. The 715 total represents a decline of 17% from the FY 2019 total of 862 enforcement actions. The 405 standalone actions during FY 2020 represents a decline of 23% from the 526 standalone enforcement actions filed in FY 2019.
The report attributes the decline in the number of enforcement actions during FY 2020 relative to FY 2019 to “the unprecedented challenges posed by the global COVID-19 pandemic.” The entire division has been working from home since March, which has “created unique impediments to several important aspects of our work, such as taking testimony from live witnesses, gathering evidence, and litigating our cases in court.” Nevertheless, the report notes, the division found ways to continue its work; 492 of the 715 total enforcement actions were initiated after the mandatory work from home order went into effect in mid-March.
Of the 405 standalone matters initiated during FY 2020, the largest share involved securities offerings (32%), with investment advisory and investment company issues representing the next highest share (21%), and issuer reporting/accounting and auditing representing the third-highest share (15%). Other areas of significant focus were actions relating to broker-dealers (10%) and market manipulation (5%), as well as public finance (3%) and FCPA (2%).
The agency obtained monetary remedies in FY 2020 in enforcement actions totaling a record $4.68 billion, representing an increase of $330 million (8%) over the $4.39 billion of total recoveries in FY 2019. The record level FY 2020 recoveries consists of $1.09 billion in penalties, roughly level with the $1.10 in penalties in FY 2019, and $3.58 billion in disgorgement, well above the $3.24 billion in disgorgement recoveries in FY 2019.
The agency’s FY 2020 median recovery was $532,860, which represents a slight decline from the $554,033 median recovery in FY 2019.
The agency’s record level of total recoveries during FY 2020 was largely the result of significant recoveries in a few large cases. The 5% of cases representing the largest recoveries during the fiscal year accounted for $81% of the agency’s total FY 2020 recoveries; by contrast, in FY 2019, the top 5% of cases represented 70% of total recoveries.
Among the agency’s largest recoveries was the agency’s enforcement action against Telegram Group, Inc., in connection with the company’s unregistered offering of digital tokens, which the agency alleged was in violation of the federal securities laws. The company was ordered to return more than $1.2 billion to investors and to pay a $18.5 million penalties. The agency also recovered $500 million from Wells Fargo in connection with the companies combined $3 billion settlement with the SEC and the U.S. Department of Justice in connection with the company’s bogus customer account scandal. (The $400 million fine against Goldman Sachs in connection with the company’s $2.8 billion 1MDB scandal settlement was announced after the close of FY 2020 and will be included in the agency’s FY 2021 enforcement figures.)
While the COVID-19 outbreak disrupted the agency’s efforts as discussed above, it affected the agency’s work in other ways, as the agency “dedicated substantial resources to address the emerging threats presented by COVID-19 and the ensuing dynamic market conditions.” Among other things, the agency instituted a Coronavirus Steering Committee to oversee and coordinate investigations triggered by activity following the coronavirus outbreak. (In September, the Enforcement Division head said that the agency had opened nearly 150 probes related to coronavirus-related conduct.)
FY 2020 was also a record-breaking year for the SEC’s Whistleblower program. The Commission issued awards totaling approximately $175 million to 39 individuals, both figures greater than in any other year in the program’s history. (The agency’s recent record $114 million whistleblower award was announced in October, after the end of the 2020 fiscal year, and so will be included in the agency’s 2021 fiscal year results.) As a result of streamlined processes in the whistleblower program, the agency also issued more preliminary determinations. (The Preliminary Determinations set out the staff’s recommendations regarding whether a claim should be approved or denied, and if approved, a proposed award amount.) In FY 2020, the Division issued 315 preliminary determinations, a more than 95% increase over the next highest year, and the Commission issued 197 final orders, an approximately 19% increase over the next highest year.