SEC Enforcement Actions Decline, But Total Remedies Reach Record Levels
The Securities and Exchange Commission (SEC) made headlines on Friday by announcing that it filed a total of 583 enforcement actions in fiscal 2024, which ended on September 30. This marked a significant decrease of 26% compared to the previous year, but what’s even more striking is that the SEC secured financial remedies totaling $8.2 billion, a new record in its history. The bulk of these remedies, $6.1 billion to be exact, came from disgorgement and prejudgment interest, complemented by $2.1 billion in civil penalties.
One standout case that contributed significantly to this record sum was a securities fraud case against Terraform Labs PTE Ltd. and Do Kwon. A jury trial verdict found both parties guilty of orchestrating a long-running fraud scheme involving cryptocurrency asset securities. This ruling accounted for approximately 56% of the total remedies obtained by the SEC in fiscal 2024.
SEC Chair Gary Gensler applauded the Division of Enforcement for its unwavering commitment to holding wrongdoers accountable. He emphasized the importance of upholding the integrity of capital markets to benefit both investors and issuers. Gensler’s statement reflects the dedication of the SEC to protect and promote fair practices in the financial industry.
In the realm of enforcement relevant to advisers, the SEC has focused on several key areas. An initiative to monitor off-channel communications ensures that broker/dealers, investment advisers, and credit ratings agencies comply with recordkeeping requirements. Throughout fiscal 2024, the SEC initiated recordkeeping cases resulting in civil penalties exceeding $600 million levied against over 70 entities. This push for compliance underscores the SEC’s commitment to maintaining transparency and accountability in financial transactions.
Another notable enforcement effort by the SEC centered around the marketing rule, which aims to prevent investment advisers from misleading clients. Cases brought against more than a dozen investment advisers revealed violations such as advertising hypothetical performance without ensuring relevance to clients’ financial situations or investment objectives, using misleading statements, and promoting false performance metrics. While specifics of settlements were not disclosed, these actions illustrate the SEC’s vigilance in regulating marketing practices to safeguard investors.
The SEC’s report for fiscal 2024 highlighted emerging technologies as potential sources of investor risk, particularly concerning cybersecurity incidents and misuse of social media by market participants. Investigations into noncompliance and deceptive disclosures across various sectors, including artificial intelligence, social media, and cryptocurrency, underscore the need for heightened scrutiny in these areas.
In addressing emerging technologies, the SEC cracked down on misleading claims related to artificial intelligence applications in asset management. High-profile cases against QZ Asset Management, Delphia, and Global Predictions highlighted deceptive practices regarding AI utilization. Additionally, settlements with entities like the New York Stock Exchange, Equiniti Trust Co. LLC, and R.R. Donnelley & Sons underscored the SEC’s commitment to cybersecurity oversight and protection of client assets.
Moreover, enforcement actions against investment professionals implicated in fraud and securities law violations reinforce the SEC’s role as a vigilant overseer of financial markets. Charges brought against firms like MassAve Global Inc. and Aon Investments for misleading investors and clients evoke the SEC’s commitment to maintaining the transparency and integrity of investment practices.
As the regulatory landscape continues to evolve, with a new administration set to assume office, the SEC remains steadfast in its mission to safeguard investors, promote market integrity, and hold wrongdoers accountable. With a record-breaking fiscal year behind them, the SEC is poised to continue its enforcement actions aimed at ensuring a fair and transparent financial system.