RIA Compliance Blog
With the end of the federal government’s fiscal year, the Securities and Exchange Commission (SEC) once again recently released results from the enforcement program, covering November 2022 through October 2023. The release included cumulative totals and highlighted individual cases and enforcement areas of concentration. The annual release serves as a roadmap for where the SEC is spending its resources, and what conduct will likely lead to enforcement actions.
During fiscal year 2023, the SEC’s Enforcement Division filed 3% more total enforcement actions than during 2022. This included an 8% increase in “stand-alone,” or original actions, along with increases in the number of “follow-on” administrative proceedings. These “follow-on” actions are typically filed after an associated criminal, civil, or other regulatory action, and look to impact an individual’s ability to conduct business in the securities industry.
In total, the SEC obtained orders for $4.949 billion in financial remedies, including $3.369 billion in disgorgement and $1.58 billion in civil penalties. While these totals are staggering, both the disgorement and civil penalties represent the 2nd highest amounts previously ordered.
While the SEC’s enforcement activities included actions against public companies, gatekeepers, cryto currencies and traders, and other securities issuers, many of the enforcement results focused on investment advisers and their associated industry.
We’ve previously discussed the SEC’s enfocement actions against 25 investment advisers and broker-dealers for failing to maintain certain required books and records, namely text message conversations. The required preservation of communications has long been an area of focus for SEC examinations, but the prominence has increased in light of new technology and increased work-from-home arrangements. Investment advisers can expect regulators to continue to examine how registrants comply with, review, and enforce their communication policies.
Similarly, we’ve previously discussed the SEC’s announcements regarding enforcement actions related to the 2022 New Marketing Rule. Fiscal year 2023 was the first full year following the November 2022 compliance deadline, and the filed enforcement actions represent either a failure to adopt policies and procedures reasonably designed to comply with the Rule, the lowest hanging fruit, or non-compliance with the use of hypothetical performance information, one of the areas most discussed during the adoption of the rule. The SEC has already given notice that compliance with the New Marketing Rule will continue to be an area of focus into 2024.
During 2023, the SEC continued to take action against firms who failed in their compliance programs designed to preserve integrity in the financial markets. The SEC obtained a judgement against Danske Bank for $178.6 billion for issues in the Bank’s anti-money laudering compliance program and for failing to disclose to investors the risk created by the program. Additionally, the SEC charged Merrill Lynch with failing to file necessary Suspicious Activity Reports for a 10 year period from 2009 to 2019.
The SEC’s release continues to highlight how cooperation with the SEC is encourage and rewarded. To highlight these rewards, the SEC pointed to a broker-dealer who self-reported books and records violations and settled the charges for $2.5 million, substantially less than similar broker-dealers who did not self-report the same violations. As stated by the release, “[r]ewarding parties that cooperate encourages other firms to proactively self-police, self-report, and remediate potential securities law violations and to provide meaningful cooperation with the Division’s investigations.”[1] Additionally, the SEC emphasized the success of its Whistleblower Program, awarding almost $600 million in whistleblower awards. The SEC noted that they received more than 18,0000 whistleblower complaints in fiscal year 2023, a 50% increase over fiscal year 2022’s figures.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our Investment Adviser Group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our Investment Adviser Practice Group page for more information.
[1] Securities and Exchange Commission, SEC Announces Enforcement Results for Fiscal Year 2023 (2023-234) available at: https://www.sec.gov/news/press-release/2023-234