SEC Whistleblower Program Success
The Securities and Exchange Commission announced that they filed a total of 784 enforcement actions, a 3 percent increase compared to the previous fiscal year. These actions included 501 original enforcement actions, an 8 percent increase from before. Additionally, the SEC filed 162 “follow-on” administrative proceedings to bar or suspend individuals from certain functions in the securities markets, and 121 actions against issuers who failed to make required filings with the SEC.
The SEC’s enforcement actions spanned multiple areas in the securities industry, addressing fraud, emerging threats in crypto assets and cybersecurity. Violations involved public companies, investment firms, gatekeepers, and social media influencers. The SEC also protected whistleblowers and enforced regulations to preserve oversight and investor protection in the industry.
SEC Chair Gary Gensler emphasized the role of the Division of Enforcement in safeguarding the investing public, stating that the results of the past fiscal year demonstrate the Division’s effectiveness in holding wrongdoers accountable. Gurbir S. Grewal, Director of the Division of Enforcement, highlighted the importance of working with urgency and utilizing all available tools to protect investors and enhance public trust in the markets.
Sanjay Wadhwa, Deputy Director of the Division of Enforcement, praised the staff’s unwavering commitment to pursuing bad actors and holding them accountable for their actions.
In terms of financial remedies, the SEC obtained orders for $4.949 billion in fiscal year 2023, the second-highest amount in SEC history. This included $3.369 billion in disgorgement and prejudgment interest, as well as $1.580 billion in civil penalties. The SEC also barred 133 individuals from serving as officers and directors of public companies, the highest number in a decade. Additionally, the SEC distributed $930 million to harmed investors during the fiscal year, continuing the trend of significant distributions in recent years.
The SEC Whistleblower Program also had a remarkable year in fiscal year 2023. The SEC awarded nearly $600 million in whistleblower awards, the highest amount ever awarded in a single year. The program received over 18,000 whistleblower tips, a record number representing approximately a 50 percent increase compared to the previous year. Overall, the SEC received more than 40,000 tips, complaints, and referrals, a 13 percent increase from the previous fiscal year.
Topics and Focus Areas
In FY 2023, there were 784 enforcement actions, with 501 being “standalone” cases. These actions covered various companies, industries, and alleged violations. Enforcement focused on themes, successes, and priorities in summarizing the outcomes of the year, including:
Protecting Retail Investors
The Division focuses on protecting retail investors. In fiscal year 2023, the SEC took action against alleged fraudsters involved in affinity frauds and Ponzi schemes, targeting various communities such as the Tongan American community, elderly church members, Spanish-speaking communities, law enforcement and first responders, and the Orthodox Jewish community.
The SEC also obtained asset freezes in cases involving a Florida resident operating a Ponzi scheme targeting the Haitian American community and a Miami-based investment adviser involved in a crypto asset fraud scheme worth $100 million.
Public Company Misstatements
Accurate disclosures by public companies are crucial for the securities markets. In fiscal year 2023, the Division’s investigations led to charges against various public companies for misconduct including fraud, accounting misstatements, and deficient controls.
Notable cases involved Fluor Corporation, Newell Brands Inc., and Electric vehicle companies XL Fleet, Canoo Inc, Kandi Technologies Group, Inc, and Hyzon Motors, Inc. Charges ranged from accounting errors to misleading investors about sales growth and making misleading statements about revenue projections, sales, or product launches.
Gatekeepers
Gatekeepers, such as accountants and auditors, are crucial in safeguarding investors and maintaining integrity in capital markets. The Division’s investigations in fiscal year 2023 led to charges against several gatekeepers, including audit firms Marcum LLP, Prager Metis, and Crowe U.K. LLP.
These charges involved various violations, resulting in civil penalties and undertakings to ensure compliance. The Division remains committed to its mission of holding gatekeepers accountable and protecting the interests of investors.
Market Abuse
In fiscal year 2023, the SEC addressed various abusive trading practices through enforcement cases. These included insider trading, front-running, and market manipulation.
Notable cases involved social media influencers allegedly manipulating stocks, financial services professionals engaged in front-running, and an executive of a healthcare company involved in insider trading. These actions aimed to combat securities fraud and protect investors.
The SEC’s enforcement efforts in fiscal year 2023 focused on crypto asset securities. The Division recommended enforcement actions against various misconduct, including crypto fraud schemes, unregistered offerings, and illegal celebrity touting.
Some notable cases involved Terraform Labs, Richard Heart and his entities, FTX CEO Samuel Bankman-Fried, Genesis/Gemini, Celsius, Kraken, Nexo, Impact Theory LLC, and Stoner Cats 2 LLC.
The SEC also targeted unregistered exchanges and intermediaries like Beaxy, Bittrex, Binance, and Coinbase. The SEC addressed unlawful touting by influencers such as Paul Pierce, Kim Kardashian, and several other celebrities.
SEC registrants, such as public companies, broker-dealers, and investment advisers, possess a vast amount of electronic data, including personal identifying information, sensitive account details, and valuable information to bad actors. The Division remains vigilant in ensuring market participants disclose material cybersecurity risks and incidents, as demonstrated by recent charges against Virtu and the settlement with Blackbaud Inc.
Environmental, Social, and Governance (ESG)-Related Cases
ESG issues are gaining importance among investors, leading to a rise in ESG-branded investment products and increased focus by public companies. Notably, the SEC took enforcement actions against Deutsche Bank, Goldman Sachs Asset Management, and Activision Blizzard for various ESG-related failures, resulting in significant penalties.
Public Finance Abuse
In fiscal year 2023, the SEC took significant enforcement actions in the public finance sector. These included charges against Exelon Corporation and its subsidiary for fraud in a political corruption scheme. Three broker-dealers were charged for failing to provide required disclosures when selling new issue municipal bonds. The SEC also filed a case against an auditor of a municipal issuer for fraud related to the audit of financial statements for a Louisiana-based school board.
Investment Professionals and Service Providers
The Division focuses on detecting misconduct by investment professionals. Recent actions in fiscal year 2023 include charges against Prime Group Holdings LLC for inadequate disclosure of real estate brokerage fees, resulting in a settlement of $6.5 million civil penalty and over $14 million in disgorgement. AssetMark Inc faced charges related to undisclosed conflicts of interest and agreed to pay a civil penalty of $9.5 million and disgorgement of over $8.5 million.
Foreign Corrupt Practices Act (FCPA)
The SEC is dedicated to enforcing the FCPA against U.S. traded securities issuers involved in bribery and corruption abroad. In fiscal year 2023, the SEC took action against Koninklijke Philips N.V., a medical supplier based in Amsterdam, for improper conduct by its subsidiaries in China. They influenced hospital officials to favor Philips products.
Philips settled the charges by paying over $62 million. Additionally, the SEC charged Albemarle Corporation, a global chemicals company based in North Carolina, for using agents to obtain contracts through bribes in Vietnam, India, and Indonesia. Albemarle settled by paying over $100 million.