In November 2022, the Securities and Exchange Commission’s (SEC) Division of Enforcement published its enforcement results for 2022. The annual report was presented as a press release and accompanying addendum which provides a statistics summary and indexes the actions filed through the year.
During the year, the Division filed 760 enforcements, including 462 new enforcement actions, 129 actions against issuers who were delinquent in required SEC filings and 169 follow-on administrative proceedings that sought to bar or suspend individuals from specific functions in the securities markets based on criminal convictions, civil injunctions, or other such orders. Overall, this represented a 9% increase in total actions filed compared to 2021.
There was a significant increase since prior year in monetary penalties ordered in SEC actions, totaling $6.439 billion, the most on record in SEC history. This included $4.194 billion in civil penalties and $2.245 billion in disgorgement. There were more than 12,300 whistleblower tips through the year, and the SEC issued approximately $229 million in 103 whistleblower awards, representing the second highest year on record in terms of dollar amounts and number of awards.
The Division sought a number of enforcement actions in the following priority areas:
- Financial fraud and issuer disclosure;
- Gatekeepers (auditors, lawyers, transfer agents) for failure to live up to their responsibility;
- Cybersecurity and compliance;
- Environmental, social and governance (ESG);
- Private funds;
- Regulated entities and associated individuals;
- Market abuses;
- Complex products;
- Public finance abuse; and
- Foreign Corrupt Practices Act
The highest number of enforcement actions were brought in matters involving investment advisers/investment companies (23%), broker dealers (17%), delinquent filings (17%) and securities offerings (15%).
The Division maintained its focus on traditional priority areas, including:
- Private funds – a focus on recurring issues, including undisclosed conflicts of interest, fees and expenses, valuation, custody and controls around material nonpublic information. Enforcement actions included charges for failure to comply with the Custody Rule, failure to accurately update Form ADV, misrepresentation of performance to investors and making misleading statements to investors about fees and expenses being charged.
Regulated entities and associated individuals – this included two first-of-its-kind actions:
- Violations of the Advisers Act for an adviser’s failure to disclosure conflicts of interest regarding its personnel’s ownership of sponsors of special purpose acquisition companies (SPACs), in which the firm advised the clients to invest.
- Alleging that a broker-dealer and its representatives violated their obligations under Regulation Best Interest (Reg BI) to exercise reasonable diligence, care and skill and to adequately establish, maintain and enforce written policies and procedures reasonably designed to achieve Reg BI compliance.
Worthy of note are enforcements in the following key evolving areas:
- Cryptocurrency – The Division remains focused on this rapidly evolving area following the SEC announcement in May 2022 that it would nearly double its staffing in its Crypto Assets and Cyber Unit. In a first-of-its-kind action against crypto lending platforms, the Division charged a crypto lending platform company for violating the registration requirements of the Investment Company Act of 1940.
- ESG – As this area has become increasingly important following the creation of the Division’s Climate and ESG Taskforce in May 2021, there has been ongoing analysis of the disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. The Division is reviewing areas such as materiality, accuracy of disclosures and fiduciary duties. Enforcement actions in this area included charges for making materially misleading statements and omissions about ESG considerations in investment decisions, and false and misleading claims on safety issues causing serious environmental and social harm.
- Cybersecurity and compliance – The Division continues to identify failures to comply with core obligations including record-keeping and safeguarding of client information. Key cases related to insufficient policies and procedures to protect personal identifying information of customers and to protect investors from identify theft. The Division stressed the importance of firms ensuring they keep pace with technological developments and their impact on business conduct.
As reflected in these results and noted by the SEC Chair, Gary Gensler, the Division continues to move with a sense of urgency to protect investors, hold wrongdoers accountable and deter future misconduct. The enforcement results provide a basis for all individuals and firms to evaluate their existing policies and procedures and consider potential enhancements to ensure ongoing compliance.
View the full enforcement press release published by the Division.