In recent days, SEC observers have speculated about who the new head of the agency will be in the incoming Trump Administration and what the new leadership might mean for the agency’s regulatory and enforcement agenda. While we await the upcoming changes, it is still worth asking what the agency has been up to from an enforcement standpoint in the most recently completed fiscal year (ended September 30, 2024). The agency’s recently issued enforcement activity report and a separate academic study of the agency’s enforcement activity against public companies and their subsidiaries both reveal some interesting and arguably unexpected information about what the agency has been doing. Among other things, the agency’s report shows that while the agency’s overall enforcement activity levels declined in the most recent fiscal year, the agency’s total recoveries were at record levels – but both of these observations require further discussion as well.

The SEC’s November 22, 2024, report on its FY 2024 enforcement activity can be found here. The agency’s more detailed enforcement statistics can be found here. Cornerstone Research and the NYU Pollack Center for Law & Business’s November 21, 2024, report about their agency’s FY 2024 enforcement activity against public companies can be found here. Their press release about the report can be found here.  

According to its report, the agency filed 583 total enforcement actions in FY 2024, representing a 26% percent decline from the 784 total actions filed in FY 2023 and reflecting some of the lowest activity levels in nearly a decade. Arguably the most significant decline is the reduction in the number of standalone enforcement actions; there were only 431 of these independently charges cases, the lowest number in the last decade with the exception only of the pandemic years of 2020 and 2021. The number of other types of enforcement actions, including both follow-on administrative proceedings and delinquent filings proceedings also fell to the lowest level in a decade.

According to the separate Cornerstone Research report, enforcement activity involving public companies and their subsidiaries also declined in FY 2024 compared to the prior fiscal year. The SEC filed 80 enforcement actions against public companies and subsidiaries in FY 2024, representing a 12% decline from FY 2023, though the FY 2024 filings were about 5% above the prior nine-year average. The total number of FY 2024 enforcement actions involving public companies was substantially boosted by the high priority the agency gave to record-keeping violations due to off-channel communications, which accounted for 22 of the 80 FY 2024 enforcement actions (27.5%) against public companies and subsidiaries. The report also notes that of the 80 FY 2024 public company enforcement actions, 35 (44%) were initiated in September, the last month of the fiscal year.

During FY 2024, the SEC obtained financial remedies of $8.2 million, which the agency said was “the highest amount in SEC history.” This total amount consisted of $6.1 billion in disgorgement and prejudgment interest (also the highest amount on record), and $2.1 billion in civil penalties (the second-highest amount on record).

While these record-setting financial recovery numbers are indeed eye-popping, some further explanation is required. About 56% of the $8.2 billion is attributable to a single case, SEC v. Terraform Labs, which resulted in a monetary judgment following trial of $4.47 billion in disgorgement, prejudgment interest, and civil penalties. As the Sullivan & Cromwell law firm noted in its November 26, 2024, memo about the SEC’s FY 2024 enforcement activity (here), given the significance of this one case, “the $8.2 billion is not, on its own, a particularly useful metric for assessing enforcement trends,” because without the Terraform judgment, the FY 2024 financial remedies “would be in line with historic numbers.”

Discussion          

The SEC’s FY 2024 enforcement activity statistics may surprise some observers. I think the standard assumption is that the agency under its Chair Gary Gensler has been an active and perhaps even aggressive from an enforcement standpoint. Gensler and other agency officials certainly have regularly used what the Sullivan & Cromwell law form memo calls “aggressive language” to describe the agency’s enforcement approach, and under Gensler the agency has pursued some aggressive theories, such as for example, the agency’s enforcement action against SolarWinds in which the agency sought to expand the SEC’s authority to regulate cybersecurity controls as internal accounting controls.

The reason for the drop in enforcement activity level in FY 2024 is, as the law firm memo comments, “difficult to discern.” Among other things, the law firm memo speculates that the decline in activity may be due to “a reallocation of resources to numerous investigations of digital asset matters, off-channel communications matters,” and other significant agency priorities under Gensler.

Whatever may be the reason for the drop-off in enforcement activity in FY 2024, the upcoming FY 2025 transition year, according to the law firm memo, “is likely to also see lower activity levels,” while the agency undergoes an adjustment period as new personnel take up leadership positions at the agency.

As the new leadership gets into position, we are, according to the law firm memo, also “likely to see its resources allocated away from some of Chair Gensler’s priorities.” For example, I suspect we will see the agency shift away from enforcement activity relating to cryptocurrency and other digital assets, and the agency’s push to police off-channel communications likely will ease as well.

The law firm memo also suggests that under the Trump administration the agency is likely to shift “back to more traditional areas of SEC focus including issuer accounting and disclosure matters, offering fraud, market manipulation and insider trading, and the like.”

One thing that the SEC’s report, the Cornerstone Research report, and the law firm memo do not discuss is the impact on the number of SEC enforcement action filings from the U.S. Supreme Court’s June 2024 decision in the SEC v. Jarkesy case, in which the Court struck down the agency’s use of administrative tribunals in civil penalty actions. It would not surprise me to learn that one of the practical effect of the ruling is that the agency has curtailed its use of administrative tribunals, which has in turn resulted in fewer enforcement action filings overall. While I suspect that this may explain at least in part the FY 2024 decline in enforcement action filings, none of the reports provide statistical support for this proposition, so my suggestion in that regard is purely conjectural.