SEC Announces Enforcement Results for FY 2016

By: Douglas E. Roberts 

This week, the Securities and Exchange Commission (“SEC”) announced its enforcement statistics for Fiscal Year (“FY”) 2016.  All told, the agency filed 868 enforcement actions, including a record 548 independent actions for violations of federal securities law, and recovered more than $4 billion in disgorgement and penalties.  The number of independent enforcement actions represents an 8% increase over the number of such actions filed in FY 2015 (507) and a 32% increase over those filed in FY 2014.

The agency has yet to release its Select SEC and Market Data, the report that will break down the quantity and types of enforcement actions pursued.  However, the overview contained in this week’s announcement provides some insight into the agency’s foci for the past year, and likely going forward.

Foreign Corrupt Practices – The SEC filed 21 actions to enforce the Foreign Corrupt Practices Act (“FCPA”) and announced two non-prosecution agreements with companies that self-reported FCPA violations.  The 21 actions are a high-water mark for FCPA enforcement for the SEC.  The agency’s increased efforts to pursue American companies for conduct committed overseas is consistent with public statements made by SEC officials throughout FYs 2015 and 2016.  Businesses should anticipate that the SEC will increase its FCPA enforcement in the upcoming fiscal year.

Rewarding Whistleblowers – The SEC whistleblower program distributed to 13 recipients more than $57 million – more money than the program has distributed in all other years combined since its 2011 inception, and a 50% increase over its payouts from FY 2015 ($38 million).

The SEC also brought the agency’s first-ever standalone action for retaliation against a whistleblower and charged three companies with violating Exchange Act Rule 21F-17, which prohibits the use of confidentiality agreements to impede a whistleblower from communicating with the SEC.  These protective actions on behalf of whistleblowers, coupled with ever-growing distributions, signal that the SEC has an increased sense of purpose surrounding the development of its whistleblower program.

Gatekeepers – The SEC publicized its efforts to hold so-called “gatekeepers,” such as attorneys, accountants, and auditors, accountable for the failure to comply with professional standards.  It filed actions against auditing firms for violating auditor independence rules and conducting deficient audits; it sanctioned a consultant for improperly evaluating the severity of the company’s internal control deficiencies; and it charged attorneys with allegedly offering EB-5 investments while not being registered brokers.

The agency’s emphasis on such actions furthers a trend that began in 2014 with the SEC “Gatekeeper Enforcement Initiative.” The focus on gatekeepers also aligns with the SEC’s recent public statements regarding the importance of ensuring that these individuals are satisfying their professional obligations.

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