As I noted at the time, earlier this month the SEC released its enforcement activity report for the fiscal year ending September 30, 2020. While the report fully detailed the agency’s enforcement activity, the report did not break out statistics reflecting the SEC’s actions against publicly traded companies. A November 18, 2020 report from Cornerstone Research, written in collaboration with the NYU Pollack Center for Law & Business, entitled “SEC Enforcement Activity: Public Companies and Subsidiaries Fiscal Year 2020 Update” (here), takes a detailed look at SEC enforcement activity involving publicly traded companies and their subsidiaries during FY 2020.
As was the case with enforcement activity overall, enforcement activity involving publicly traded companies declined during FY 2020 due to the impact of the coronavirus outbreak, but after a sharp drop in activity during the first half of the fiscal year, enforcement activity rebounded toward the end of the second half. The agency’s $1.6 billion in public company monetary settlements slightly exceeded the equivalent figures for FY 2019. Cornerstone Research’s November 18, 2020 press release about the report can be found here.
The new report is based on analysis of data in the Securities Enforcement Empirical Database (SEED), which is based on a collaboration between the NYU Pollack Center for Law & Business and Cornerstone Research. The SEED database contains 697 enforcement actions filed against 602 public companies and their subsidiaries between October 1, 2009 and September 30, 2020. Public companies are defined as those traded on a major U.S. exchange at the time the enforcement action was initiated or within a five-year period preceding the initiation. Public companies traded over-the-counter or only on major non-U.S. exchanges are excluded as are companies that did not become publicly traded until after the enforcement action was initiated.
As noted in the SEC’s FY 2020 enforcement activity report, the agency filed a total of 405 independent enforcement actions during FY 2020, the lowest number since FY 2013. Of the 405 independent actions the agency initiated during FY 2020, 61 involved publicly traded companies or their subsidiaries, representing about 15% of all SEC enforcement actions, the same percentage as the FY 2013- FY 2019 annual average.
The 61 enforcement actions during FY 2020 against publicly traded companies is the lowest annual number of actions against public companies since FY 2014 (when there were 51 public company enforcement actions), although the 61 enforcement actions against public companies during FY 2020 is only slightly below the FY 2010- FY 2019 annual average of 64.
The 61 enforcement actions filed during FY 2020 represents a significant decline (35.8%) from the record 95 enforcement actions against public companies in FY 2019.
The relative slowdown in the agency’s initiation of enforcement actions against public companies during FY 2020 compared to FY 2019 appears to be largely due disruptions caused by the coronavirus outbreak, particularly during the early phases of the outbreak during the Spring. After three consecutive months of three or fewer action per month during the period March to May 2020, enforcement activity began to increase during June.
As has been the case in recent years, a significant amount of the public company enforcement activity during FY 2020 took place in the final weeks of the fiscal year. Thus, the SEC filed nearly one-third of all FY 2020 public company actions in September 2020; the agency filed 18 of the total 61 actions against public companies during FY 2020 during September’s last two weeks. Over twice as many actions were filed in the second half of FY than during the first half (41 vs. 20 actions).
Issuer Reporting and Disclosure was the most common allegation type in FY 2020, accounting for 49% of all actions, compared to a FY 2010 – FY 2019 annual average of 36% of all public company enforcement actions involving Issuer Reporting and Disclosure Allegations. The next largest category of types of allegations during FY 2020 was Investment Adviser/Investment Company action, which represented 23 percent of public company actions during FY 2020. Only seven of the 61 public company enforcement actions during FY 2020 involved Foreign Corrupt Practices Act (FCPA) allegations, representing 11% of the total, compared to the FY 2010 – FY 2019 annual average of 19%.
The SEC brought 11 percent of public company actions in federal court (rather than through administrative proceedings) during FY 2020, which is slightly up from the 7% during FY 2019, and consistent with the annual average of 10 percent over the period FY 2015 – FY 2019.
The highest percentage of public company enforcement actions during FY 2020—46% — was initiated against companies in the Finance, Insurance and Real Estate sector, representing a decline from the 59% of all public company enforcement actions brought against public companies in that sector during FY 2019, but consistent with the 49% of actions against public companies in that sector during the period FY 2010 – FY 2019.
Monetary settlements during FY 2020 in actions involving public companies totaled $1.6 billion, which is slightly above both the FY 2019 monetary settlement total of $1.5 billion and the FY 2010 – FY 2019 annual average total of monetary settlements of $1.5 billion. The largest public company settlement during 2020 was $540 million, the third-highest maximum in the SEED database. The largest settlement was the $1.787 settlement during FY 2018. Both the large FY 2020 and the large FY 2018 settlements involved FCPA violations alleged against a single public company defendant.
Disgorgement and prejudgment interest imposed on public companies totaled $878 million in FY 2020, representing 54 percent of the $1.6 billion public company monetary settlement total during the fiscal year, slightly higher than the average 52 percent during the period FY 2010 – FY 2019.
The average public company enforcement action monetary settlement during FY 2020 was $28 million, which was up relative to the FY 2019 average of $16 million, and consistent with the FY 2010 – FY 2019 average of $28 million.
The median monetary public company enforcement action monetary settlement during FY 2020 was $5 million, slightly down from the $5 million during FY 2019, but consistent with the $4 million median during the period FY 2010 – FY 2019.