The Securities and Exchange Commission announced that it filed 760 enforcement actions and recovered a record $6.4 billion in penalties and disgorgement for fiscal year 2022.
The total enforcement actions for FY 2022 represented a 9% increase over the prior year. These included 462 new, or “stand alone,” enforcement actions, which was a 6.5% increase over FY 2021; these ran the gamut of conduct, from "first-of-their-kind" actions to cases charging traditional securities law violations, the SEC notes.
Other enforcement activity included 129 actions against issuers that were allegedly delinquent in making required filings, and 169 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions or other orders.
Money ordered in SEC actions—comprising civil penalties, disgorgement and pre-judgment interest—totaled $6.439 billion, the most on record in SEC history and up from $3.852 billion in FY 2021. Of the total money ordered, civil penalties, at nearly $4.2 billion, were also the highest on record. Disgorgement, at $2.245 billion, decreased by 6% from FY 2021.
FY 2022 was also the SEC’s second highest year ever in whistleblower awards, in terms of both the number of individuals awarded and the total dollar amounts awarded, the Commission notes. In FY 2022, the SEC issued approximately $229 million in 103 awards. The Whistleblower Program also received a record high number of tips alleging wrongdoing—more than 12,300 in FY 2022.
“As reflected in these results, the Enforcement Division is working with a sense of urgency to protect investors, hold wrongdoers accountable and deter future misconduct in our financial markets,” SEC Division of Enforcement Director Gurbir Grewal said in a statement. “A centerpiece of those efforts is ensuring that we are using every tool in our toolkit, including penalties that have a deterrent effect and are viewed as more than the cost of doing business.”
Deterrence Policy
The SEC further notes that a “hallmark” of its FY 2022 enforcement was robust enforcement through resolutions that imposed penalties designed to deter future violations, establish accountability from major institutions, and order tailored undertakings that provide potential roadmaps for compliance by other firms.
According to the announcement, this is exemplified by the SEC’s actions against more than a dozen firms for widespread failures to maintain and preserve work-related text message communications conducted on employees’ personal devices.
In addition, to deter future misconduct and enhance public accountability, the SEC notes that a number of actions recalibrated penalties for certain violations, included prophylactic remedies, and required admissions where appropriate. For example, the $1.235 billion in cumulative penalties paid in connection with the recordkeeping violations made clear that the fines were not just a cost of doing business. The undertakings in those cases included retention of compliance consultants to, among other things, conduct comprehensive reviews of the firms’ policies and procedures relating to the retention of electronic communications found on personal devices.
Meanwhile, the Division’s Trial Unit won favorable verdicts in 12 of 15 trials—the most conducted by the Division in a single year within the past decade, the SEC further notes. These cases concerned investment advisory fraud, securities fraud and registration violations, and fraud in connection with the operation of a private investment fund.
Regulated Entities
The SEC notes that it also brought numerous cases charging regulated entities, such as broker-dealers and investment advisers, and individuals associated with such firms, with a variety of violations. These included:
- An action charging a broker-dealer and its founder for falsely stating to customers that they did not restrict their purchases of highly volatile “meme stocks” when, in fact, they halted purchases of three such stocks for a period of 10 minutes.
- Charges against a registered investment adviser for failing to disclose conflicts of interest regarding its personnel’s ownership of sponsors of special purpose acquisition companies (SPACs) into which the firm advised clients to invest. This was the SEC’s first enforcement action charging violations of the Advisers Act in connection with an adviser’s involvement with SPACs.
- The SEC’s first action enforcing Regulation Best Interest, in which the SEC charged a broker-dealer and five of its representatives, alleging that they violated their obligations under the regulation that took effect in June 2020.
Crypto
The SEC also remained focused on the rapidly evolving crypto asset securities space. In May 2022, the SEC announced that it would add 20 positions to the renamed Crypto Assets and Cyber Unit, nearly doubling that unit’s staffing. Staff across the Division also continued to investigate potential misconduct in this area, leading to significant enforcement actions including charges related to:
- failing to register the offers and sales of its retail crypto lending product, and action against crypto lending platforms for violating the registration requirements of the Investment Company Act of 1940; and
- creating and promoting a fraudulent crypto pyramid and Ponzi scheme.
Cybersecurity
The SEC also brought significant enforcement actions in FY 2022 concerning failures by firms to comply with core obligations including record-keeping and safeguarding customer information. “These cases, and others like them, reflect the critical importance of firms ensuring that their policies, procedures, and practices keep pace with technological developments and the resulting changes in how business is conducted,” the Commission emphasizes. Among the key cases were:
- charges against J.P. Morgan Securities LLC, UBS Financial Services Inc., and TradeStation Securities, Inc. for insufficient policies and procedures to protect investors from identity theft, in violation of the SEC’s Identity Theft Red Flags Rule (Regulation S-ID); and
- charges against Morgan Stanley Smith Barney for failures over a five-year period to protect the personal identifying information of approximately 15 million customers.
ESG
Meanwhile, in suggesting that environmental, social, and governance (ESG) concerns have grown increasingly important to many investors, the Division has focused attention on these issues with respect to public companies and investment products and strategies.
The SEC explains that, in doing so, the staff applies “time-tested principles concerning materiality, accuracy of disclosures, and fiduciary duty, as codified in federal statutes, regulations, and case law.”
These efforts resulted in SEC enforcement actions including an action charging BNY Mellon Investment Adviser for materially misleading statements and omissions about its consideration of ESG principles in making investment decisions for certain mutual funds.
