SEC Enforcement 2024: Year in Review
The dog days of late summer are a frenzied time within the SEC's Division of Enforcement as staff work feverishly to complete their investigations and secure the requisite yes vote from a majority of commissioners to authorize the filing of as many new enforcement actions as possible before the agency's fiscal year concludes on Sept. 30.
As in prior years, the SEC recently reported enforcement results for fiscal year 2024 (Oct. 1, 2023, to Sept. 30, 2024). In this first installment of Season's Readings, as winter weather sweeps across the nation, we summarize what the SEC reported and what it did not and offer a few takeaways to consider as the agency prepares for presidential transition and, with it, new SEC leadership. So pour yourself a hot cup of cocoa, curl up under your favorite blanket and let's dive in.
Fewer Total Actions Filed Despite a Race to the Finish
Between Oct. 1, 2023, and Sept. 30, 2024, the SEC filed 583 total enforcement actions, 431 of which were "standalone" actions (a civil district court action or agency administrative proceeding excluding both Exchange Act Section 12(j) proceedings against late filers and follow-on administrative proceedings to impose bars and suspensions, such as forbidding individuals from appearing and practicing before the SEC).
Though on first blush 583 cases may have the feel of an active year – especially for defendants in the SEC's crosshairs – total actions were down a whopping 26 percent from fiscal year (FY) 2023, including a 14 percent year-over-year dip in standalone cases. Notably, the SEC went to trial only five times in FY 2024, down considerably from 12 to 15 trials in prior years. Such decreasing enforcement filings in a(nother) year in which the SEC seemed focused on frothy but oft-challenged rulemaking efforts make for a notable takeaway, especially in light of data showing that the SEC scurried to file more than 60 percent of its FY 2024 cases in the final quarter of the year. Given a number of appellate setbacks the SEC faced in recent years including FY 2024 (Loper Bright and Jarkesy, to name a couple), it will be interesting to monitor how recently filed cases against defendants who are choosing to litigate will play out.
All-Time Record-Setting Monetary Sanctions – Propped up by a Major Settlement
The SEC secured orders awarding an astonishing $8.2 billion in total financial remedies in FY 2024. But it's important to understand that the SEC obtained $4.5 billion of that in settling its case against Terraform Labs and its founder, Do Kwon, after winning a jury trial against them.
Nationwide sweeps covering a variety of industries and issues of interest contributed a significant amount to the remaining $3.7 billion the SEC obtained in remedies, alongside typical remedies accompanying concluded actions involving alleged disclosure and accounting fraud, insider trading, and other schemes and strict liability claims.
The financial remedies the SEC can obtain include disgorgement of ill-gotten gains (giving back what one never should have obtained), prejudgment interest (interest charged over the period the ill-gotten gains were retained) and civil penalties. The point of civil penalties, of course, is to penalize or punish alleged wrongdoers for the bad acts and thereby deter future wrongdoing by them and others (through the message a penalty sends). In its FY 2024 report, the SEC reiterated its years-long campaign to encourage increased self-reporting and cooperation, noting that, for instance, it credited cooperation in 75 percent of public company investigations according to a report by Cornerstone Research. Most frequently, the SEC credits cooperation by reducing penalties or, in some cases, declining to impose any penalty at all. And though the SEC does not (but should) publicly report data identifying the number of investigations closed without any enforcement action, in some instances self-reporting and cooperation can result in no enforcement action whatsoever.
Leaning into Sweeps to Send Messages and Secure Results
As casework seemed to slow in FY 2024, the staff leaned into industry and topic-based sweeps to canvas for potential enforcement actions – a notable trend for the year that produced results for the agency and comprised nearly 30 percent of the staff's cases for the year. In FY 2024, the staff conducted at least five sweeps (an enforcement initiative targeting specific areas of compliance when the SEC believes it can identify multiple violations through a streamlined series of investigations), some of which (and others anew) are ongoing and cover issues such as alleged recordkeeping lapses for so-called "off-channel" communications by investment advisers, broker-dealers and ratings agencies, beneficial ownership disclosures, advisers' Marketing Rule compliance and adherence to Regulation Best Interest and Form CRS.
FY2024 Enforcement Actions in a Nutshell
As noted above, the SEC leaned heavily into sweeps throughout FY 2024. In addition to those actions, the agency filed cases involving alleged insider trading and so-called "shadow trading" (and won its first-ever shadow-trading case at trial), artificial intelligence (AI)-washing, efforts to chill whistleblowing, accounting and disclosure fraud, failures to timely disclose cyber incidents and other material events, market manipulation, failures to register and more. In the same period, the SEC closed one of its regional offices, declined to appeal a U.S. Court of Appeals for the Fifth Circuit decision vacating the new Private Fund Rules, saw its Climate Disclosure Rule quickly ensnared in litigation, quietly disbanded its Climate and ESG Task Force and was on the receiving end of multiple unfavorable U.S. Supreme Court decisions (stay tuned for our upcoming SCOTUS Roundup).
Moving Ahead
In our year-end Season's Readings series, we will take another look at some of the trends and themes of SEC enforcement throughout FY 2024 and what may be ahead in FY 2025. With the recent departure of former Enforcement Director Gurbir Grewal, Chair Gary Gensler's announced January 2025 departure and the anticipated confirmation of former Commissioner Paul Atkins as the agency's new chair, much remains to be seen. Do enforcement priorities and outcomes under former SEC Chair Jay Clayton (a Trump appointee now on deck to become U.S. Attorney for the U.S. District Court for the Southern District of New York) provide any indication of what to expect? Stick with SECond Opinions, refill that cocoa and let's find out together.