According to the latest report from the NYU Pollack Center for Law & Business in conjunction with Cornerstone Research, SEC Enforcement Activity against publicly traded companies and their subsidiaries declined in fiscal year 2021 (which ended on September 30, 2021) relative to recent years as well as relative to fiscal year 2020. Monetary recoveries were in aggregate greater in FY 2021 relative to FY 2020. The report, entitled “SEC Enforcement Activity: Public Companies and Subsidiaries: Fiscal Year 2021 Update” can be found here. Cornerstone Research’s November 17, 2021 press release about the report can be found here.
The Cornerstone Research report is based on analysis of the Securities Enforcement Empirical Database (SEED), which is maintained by the NYU Pollack Center for Law & Business in collaboration with Cornerstone Research. The SEED database contains records of 751 enforcement actions filed against publicly traded companies and their subsidiaries between October 1, 2009 and September 30, 2021.
The Number of Enforcement Action Filings
According to the report, there were 53 SEC enforcement actions filed in FY 2021 against publicly traded companies and their subsidiaries. The 53 actions filed in FY 2021 is 15% below the 62 actions filed in FY 2021 and about 21% below the FY 2012- FY 2020 annual average of 67 SEC enforcement actions.
The 53 public company SEC enforcement actions in FY 2021 is the lower annual number of public company enforcement actions filed since FY 2014. The 53 public company SEC enforcement actions in FY 2021 represents a steep drop from the number filed in FY 2019, when there were a record-high 95 public company enforcement actions.
The report notes that Gary Gensler, the new SEC chair, was sworn into office on April 17, 2021, and adds the observation that SEC enforcement actions also declined in FY 2013 and FY 2017, both years in which a new SEC chair was sworn in.
The report also notes that there were only eight SEC actions against publicly traded companies in the last month of FY 2021, by contrast to the last month of FY 2020 (when there were 20 actions) and the last month of FY 2019 (when there were 22 actions). The eight actions in the last month of FY 2021 also contrasts to the September average of 14 actions during the period FY 2012- FY 2020.
Types of Allegations
The most common allegation type in SEC enforcement actions against publicly traded companies in eight of the last ten fiscal years has been Issuer Reporting and Disclosure. FY 2021 was the first year that Issuer Reporting and Disclosure allegations accounted for the majority (51%) of public company SEC enforcement actions filed. Investment Advisor/Investment Company actions accounted for 26% of public company SEC enforcement actions in FY 2021, the third year in a row that Investment Advisor/Investment Company actions accounted for more than 20% of SEC public company enforcement actions.
SEC public company enforcement actions based on Foreign Corrupt Practices Allegations accounted for only 8% of FY 2021 actions, the only time during the years tracked in the SEED database with FCPA allegations have accounted for less than 10% of actions. By contrast, in FY 2020, FCPA actions accounted for 11% of all SEC public company enforcement actions, and in FY 2019 FCPA actions accounted for 16% of all public company enforcement actions.
For the second year in a row, SEC public company enforcement actions brought as administrative proceedings accounted for 87% of all SEC public company enforcement actions, with only 13% of actions brought as civil actions in federal court. The FY 2021 percentage of all actions brought as administrative actions (89%) is above the FY 2012-FY 2020 annual average of actions brought as administrative proceedings of 79%, but consistent with the annual average during the last five fiscal years of 89%.
For all actions brought as administrative proceedings in FY 2021, the action and the its resolution were “announced concurrently,” consistent with the annual average of concurrent resolutions of 98% from FY 2012 through FY 2020. The enforcement actions filed as civil actions are less likely to involve concurrent resolutions. For example, in FY 2021, only one of the seven (14%) civil actions involved a concurrent resolution, lower than the annual average percentage of concurrent resolution in civil actions of 66% during the period FY 2012-FY 2020.
Of SEC enforcement actions against public companies in FY 2021 with resolutions, 6% did not involve monetary settlements. The aggregate amount of monetary settlements in SEC public company enforcement actions was $1.8 billion, similar to the annual average aggregate annual monetary settlements during the period FY 2012-FY 2020.
The average annual SEC public company action monetary resolution in FY 2021 was $38 million, compared to $28 million in FY 2020 and a $27 million annual average during the period FY 2012 – FY 2020. The median SEC public company monetary resolution in FY 2021 was only $1 million, compared to an annual median settlement of $4 million during the period $4 million.
Both the aggregate amount of FY 2021 SEC enforcement actions and the average monetary action resolution in FY 2021 were skewed upward by a single settlement of $1 billion. The aggregate and average settlement amounts during FY 2021 would be significantly lower without this one very large settlement.
Of the $1.8 billion in monetary settlements in FY 2021, $835 million (46%) came from disgorgement and prejudgment interest. By way of contrast, during the period FY 2012 – FY 2020, the average annual amount of settlement amounts from disgorgement and prejudgment interest was $877 million (representing 55% of total monetary settlements).