Large fines and admissions drive a record-breaking SEC enforcement year.
In fiscal year 2022, the Securities and Exchange Commission (SEC) received more than $6.4 billion in enforcement fines, fees, and interest—the highest sum ever received by the organization and a significant improvement over a transition year in 2021.
According to the SEC's report that accompanied Tuesday's statement, the entire amount of civil penalties in FY2022, which ended on September 30, came to approximately $4.2 billion, which was also a record. Disgorgement fell by 6% from the previous year to $2.2 billion.
The agency earned more than $3.8 billion in fines, interest, and disgorgement in FY2021. Gary Gensler, who was appointed as a new chair that year, chose Gurbir Grewal to head enforcement initiatives beginning in June 2021.
In comparison to $521 million in FY2021, almost $937 million was restored to damaged investors in that year.
The SEC's overall enforcement activity increased by 9% to 760 actions in FY2022 from FY2021's 697 actions, but it was still down from FY2019's record of 862 actions.
462, or the majority of the enforcement actions, were brand-new or stand-alone instances. The remaining measures were responses to earlier incidents, such as pursuing late filers and imposing orders prohibiting specific people from participating in future board activities. According to the research, FY2019 had 526 new activities while FY2021 saw 434 new ones.
Stand-alone actions mostly focused on the conduct of investment advisors and businesses (26 percent). 10 percent were directed at broker dealer wrongdoing, while 16 percent involved issuers, auditing, or accounting.
Individual defendants or respondents comprised more than two-thirds of the standalone actions in FY2022. The SEC prosecuted several executives, including those of Granite Construction, under the Sarbanes-Oxley Act (SOX), ordering them to refund bonuses and compensation.
Grewal stated during an SEC event on enforcement that the "robust" enforcement by the organization this past fiscal year was done on purpose.
Since taking the position, Grewal, the former attorney general of New Jersey, has warned companies that he plans to increase enforcement at the agency. Aggressive action is required to stop wrongdoing, regain public confidence in markets, and persuade lawbreakers to comply, he said again on Tuesday.
"Penalties must be adequate to deter misconduct. We sought to recalibrate penalties and get away from the idea that penalties are just a business expense," according to Grewal.
Grewal continued, "We don’t expect to break these records and set new ones each year because we expect behaviors to change," despite the agency's lack of intention to slow down. "We anticipate adherence."
Grewal cited the SEC's cases against JPMorgan Chase and a group of 11 other banks, investment firms, and their affiliates as an illustration of how it uses enforcement to force the industry to change. These cases involved employees sending work-related communications on their personal phones and failing to save the messages as required. The companies acknowledged the wrongdoing and paid more than $2 billion in fines to the SEC and Commodity Futures Trading Commission in total.
Grewal stated that the fine amounts were significant enough to demonstrate that they were "clear that fines were not just a cost of doing business," adding, "Other firms take note."
He went on to say that "admissions are incredibly powerful" and that businesses "should expect us to seek further admissions" in the upcoming year.
In May, Allianz Global Investors U.S. acknowledged that it had conspired to conceal the full risks associated with trading options. To resolve fraud allegations, the company was required to pay more than $1 billion.
The highest fine the agency has ever levied against an audit company was imposed against Ernst & Young in June, when it was told to pay $100 million. It was discovered that EY audit specialists had cheated on the ethics section of the CPA tests and courses they had to take to keep their licenses.
In September, the SEC fined Barclays and Barclays Bank $200 million for issuing too many securities. The bank was given a mandate by the agency to conduct an extensive internal audit of its Section 5 of the Securities Act compliance procedures and to make the required changes to comply.
According to the agency's whistleblower report, which was released on Tuesday, FY2022 was the second-highest year for the SEC in terms of both the number and value of whistleblower awards since the program's inception in August 2011.
In FY2022, the SEC distributed over $229 million across 103 whistleblower awards. In FY2021, the agency compensated 108 whistleblowers a record sum of $564 million.
In FY2022, the government received a record 12,322 whistleblower tips, up from 12,210 tips the year before.
According to the SEC, whistleblower-related enforcement has resulted in $6.3 billion in fines for the organization since the program's inception, including more than $1.5 billion in disgorgement that has been or will be paid back to investors.
Following a $37 million reward given to two joint whistleblowers, the greatest whistleblower payment in FY2022 was $40 million split between two people.
According to Creola Kelly, head of the SEC's Office of the Whistleblower, "Regardless of whether a whistleblower is a corporate insider, a main street investor, or an unrepresented claimant, the commission vigorously safeguards their identity while rewarding eligible individuals who identify bad actors in our markets."
According to SEC regulations, a whistleblower may get up to 30% of the money collected in financial penalties. In FY2022, the agency reported that more than 90% of whistleblowers received the full 30% payment.
By fLEXI tEAM
Retaliation against whistleblowers is prohibited by the Dodd-Frank Act, which the SEC reportedly enforced twice in 2022 and a total of 16 times since the program's inception.