SEC enforcement actions trail last year’s record numbers: Study

Agency has filed 508 enforcement actions through the first three quarters of fiscal 2016, down 8% from last year.

Enforcement activity at the Securities and Exchange Commission has slowed, according to a new study.
In the current fiscal year, the agency is behind its record-setting pace of fiscal 2015, a Cornerstone Research report shows. The agency has filed 508 enforcement actions through the first three quarters of fiscal 2016, a decrease of 8% from last year.
At the current rate, the agency will file approximately 735 actions in fiscal 2016, compared to 807 in fiscal 2015. The SEC follows the government’s fiscal year, which begins on Oct. 1 and ends on Sept. 30.
The drop-off was pronounced in the third quarter (April 1 through June 30), at 160 cases, compared to 238 in the same quarter last year.
The report also shows that the SEC has taken more actions related to previously filed cases so far in fiscal 2016 than at the same point in fiscal 2015, while the number of new actions has declined.
Typically, there is a spike in SEC enforcement during the fourth quarter. Although the agency may begin to close the gap with last year’s total, it has a lot of ground to make up.
“It’s unlikely they will get above last year’s numbers,” said Sara Gilley, a principal at Cornerstone Research, an economic and financial consulting firm. “It would really be an unprecedented quarter of activity.”
Ms. Gilley said fiscal 2016 is likely to be on par with fiscal 2014, when the SEC filed 755 cases, “which is still high.”
It’s not clear why enforcement has dropped off. The SEC declined to comment on the Cornerstone study.
Jeremiah Williams, counsel at Ropes & Gray, says the SEC numbers are down this year for two reasons. First, it’s tough to match the fiscal 2015 record, and, second, there are fewer cases related to the 2008 financial crisis.
“I don’t think this is a reflection of a dramatic change in policy or enforcement priorities,” said Mr. Williams, a former senior counsel in the SEC Enforcement Division.
The enforcement slow down can be attributed to internal uncertainty at the SEC, according to Amy Lynch, president of FrontLine Compliance.
The normally five-person commission has been operating with three members — chairwoman Mary Jo White, Democrat Kara Stein and Republican Michael Piwowar — for several months because the Senate has not confirmed the pending nominees, Republican Hester Peirce and Democrat Lisa Fairfax.
“There is political turmoil at the SEC, which has led to a lack of a cohesive leadership at the top,” Ms. Lynch wrote in an email. “This has trickled down through the agency to the point where decisions are not being made. Everyone is in ‘hurry-up-and-wait’ mode on the election.”
Keeping score on the number of enforcement cases always creates some tension at the SEC, according to Mr. Williams. The division must balance statistical output with the substance of the actions.
“The goal is to try to bring the right cases and try to bring good cases,” he said.
“It could be that we’ll see more complex cases in the fourth quarter and fewer overall enforcement actions for the year,” Ms. Gilley noted.