SEC settlements could hit 3-year high

Securities and Exchange Commission enforcement settlements are projected to reach a three-year high in 2008, according to a study issued today by Nera Economic Consulting, an economic consulting firm in New York. The number of settlements in 2008 was projected to reach 739, a more than 5% increase from the 702 settlements in 2007. Settlements with individuals were projected to reach 568 this year, Nera said in a release. Company settlements, on the other hand, were declining and could drop to 171 by the end of the year, which would be the lowest number in any year since the Sarbanes-Oxley Act, which stiffened corporate penalties, was enacted in 2002. Fifty-six percent of company settlements involve a monetary penalty, with the median company settlement valued at $1 million in the first three quarters of 2008, the study found. That was an increase over the $700,000 median in 2007, but $1 million is otherwise the lowest median company settlement since 2003, the study found. Company settlements involving misstatements typically involve no monetary penalty, or the penalty is only a fraction of the company’s market capitalization, according to the study. The number of settlements continues a “dynamic period of SEC enforcement since the enactment of Sarbanes-Oxley,” according to the release. “Since the passage of SOX, the SEC has imposed unprecedented monetary penalties on a range of defendants,” Nera said in the release. Prior to SOX, the largest penalty imposed in an SEC enforcement action against a publicly-traded company for financial fraud was a $10 million penalty against Xerox Corp. of Norwalk, Conn., in 2002. Since passage of SOX, the SEC has imposed penalties of $10 million or more against 115 parties, including 14 that were penalized at least $100 million, said the study, titled: “SEC Settlements: A New Era Post-SOX.” Insider trading is the most frequent allegation in SEC settlements for individuals. Nera projects 92 insider trading settlements will occur this year, compared to 52 in 2007. Nera also launched a website that provides statistics, analysis and a searchable database of documents relating to SEC settlements: www.SecuritiesLitigationTrends.com.