SEC hits record enforcement actions in fiscal 2014

Chairman Mary Jo White credits agency's aggressiveness and technology, but some question her regulatory zeal

Oct 16, 2014 @ 6:21 pm

By Joyce Hanson

New investigative methods and innovative technology led to a banner year for Securities and Exchange Commission enforcement in 2014, with a record number of actions taken and fines levied, the agency reported Thursday.

The SEC in fiscal 2014, which ended Sept. 30, filed a record 755 enforcement actions and obtained orders totaling $4.16 billion in disgorgement and penalties, according to the SEC's preliminary figures. That compares with 686 actions and $3.4 billion in 2013, and 734 actions and $3.1 billion in 2012.

“Aggressive enforcement against wrongdoers who harm investors and threaten our financial markets remains a top priority,” SEC Chairman Mary Jo White said in a statement. “The innovative use of technology — enhanced use of data and quantitative analysis — was instrumental in detecting misconduct and contributed to the enforcement division's success in bringing quality actions that resulted in stiff monetary sanctions.”

The enforcement actions covered a wide range of misconduct, and included first-ever cases involving “pay to play” (payments made to state and local officials by advisers to gain government business) and the market access rule (procedures to limit the risk of offering market access to customers), according to the statement.

However, Jay Baris, a partner with the law firm of Morrison & Foerster and chair of its investment management practice, questioned the agency's zeal in pursuing enforcement actions and its boast of hitting record numbers.

“The SEC continues to bare its teeth,” Mr. Baris said. “This should come as no surprise, considering the fast and furious pace of cases that appear on the SEC's website.”

Mr. Baris pointed to remarks from SEC commissioner Michael Piwowar, who, in a speech before the Securities Enforcement Forum in Washington on Oct. 14, decried the agency's fast pace of enforcement actions as the laws and rules that govern the securities industry become increasingly complex.

“It is under these circumstances, in which there is a high level of complexity and at times significant ambiguity, that a 'broken-windows' approach to enforcement may not achieve the desired result,” Mr. Piwowar said in the speech. “If every rule is a priority, then no rule is a priority. If you create an environment in which regulatory compliance is the most important objective for market participants, then we will have lost sight of the underlying purpose for having regulation in the first place. Rather than enabling vital and important economic activity, we will have unnecessarily shackled it.”

First-ever actions included cases involving a requirement that firms establish adequate risk controls before giving clients market access. One action was resolved against Knight Capital Americas, which agreed to pay $12 million to settle charges that it violated the SEC's market access rule, while another continues against Wedbush Securities Inc. and two of its executives.

Also, Wells Fargo Advisors was slapped with a $5 million penalty in the agency's first case against a broker-dealer for failing to protect a customer's material nonpublic information.

In an instance of using improved data technology and quantitative analytics, the SEC brought charges against 34 individuals and companies for violating laws requiring them to report information about their holdings and transactions in company stock. The tech initiative, which identified especially high rates of filing deficiencies, uncovered 10 investment firms with filing failures, including Brown Brothers Harriman & Co., which agreed to pay a $120,000 penalty, and Ridgeback Capital Management, which agreed to pay $104,500.

Among successful litigations, the SEC cited a jury verdict against Massachusetts advisory firm Sage Advisory Group and its principal, Benjamin Lee Grant, in a case charging that he engaged in a scheme to induce former brokerage customers to transfer their assets to Sage, his new advisory firm. The court will determine damages in the case later.

The SEC also charged more than 135 parties with violations relating to reporting and disclosure, with the Bank of America Corp. cited as a stand-out among wrongdoers. The bank agreed to pay a $7.65 million penalty to settle charges due to internal accounting deficiencies involving a large portfolio of structured notes.


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