SEC Amasses Record Enforcement Actions in 2014

With a record number of actions taken and fines levied, the Securities and Exchange Commission (SEC) experienced its most prolific year for enforcement in 2014, thanks to new investigative methods and innovative technology.

According to the SEC’s preliminary figures, the agency filed 755 enforcement actions and obtained orders totaling $4.16 billion in disgorgement and penalties in fiscal 2014, which ended Sept. 30. In 2012, 686 actions and $3.4 billion were recorded, and 734 actions taken.

SEC Chairman Mary Jo White said that aggressive enforcement against wrongdoers who harm investors and threaten our financial markets remains a top priority of the SEC. She noted that the division’s success in bringing quality actions that resulted in stiff monetary sanctions was due to the innovative use of technology — enhanced use of data and quantitative analysis.

Various types of misconduct were ferreted out by the enforcement actions. They include prosecuting ‘pay to play’ cases for the first time. Pay to play involves advisers making payments to state and local officials to gain government business. Also fined were agents involved in the market access rule — procedures to limit the risk of offering market access to customers.

For the first time, cases involved enforcing a requirement that firms establish adequate risk controls before giving clients market access. Some examples:

• Knight Capital Americas agreed to pay $12 million to settle charges that it violated the SEC’s market access rule.
• Wells Fargo Advisors was given a $5 million penalty for failing to protect a customer’s material nonpublic information.

Using improved data technology and quantitative analytics, the SEC was able to file charges against 34 individuals and companies for violating laws requiring them to report information about their holdings and transactions in company stock.

Thanks to the tech initiative, which identifies especially high rates of filing deficiencies, 10 investment firms were cited for filing failures.

Among successful litigations, the SEC charged more than 135 parties with violations relating to reporting and disclosure. Cited as a standout among wrongdoers, Bank of America Corp. agreed to pay a $7.65 million penalty to settle charges for internal accounting deficiencies involving a large portfolio of structured notes.

But not everyone is thrilled with the SEC’s regulatory zeal. Jay Baris, a partner with the law firm of Morrison & Foerster and chair of its investment management practice, questioned the smarts of the SEC’s new-found enforcement campaign.

Baris observes that if every rule is a priority, then no rule is a priority. He points out that the SEC’s radical enforcement measures may end up unnecessarily shackling vital and important economic activity rather than enabling it.

The securities law firm, Starr Austen & Miller LLP, is also committed to protecting the rights of investors. Their team of investment fraud lawyers handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence, broker churning, breach of trust, as well as malpractice.

Source: Investment News