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SEC Enforcement Actions Drop, Penalties Rise in FY 2021

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The total number of enforcement actions from the Securities and Exchange Commission declined to a five-year low in fiscal year 2021, although the number of standalone enforcement actions increased year-to-year from 2020, according to an SEC analysis of the prior fiscal year.

The SEC filed 434 new enforcement actions in fiscal year 2021, a 30% increase from the prior year, while it filed 697 total actions, a 3% drop from 2020. The total actions included 120 actions against issuers who’d erred in not making required filings with the commission as well as 143 “follow-on” investigations. In 2021, the commission also awarded $564 million to 108 whistleblowers, totaling more than $1 billion in awards since issuing the first award in 2012.

SEC Enforcement Director Gurbir S. Grewal (a member of WealthManagement.com’s 2021 Ten To Watch) took control of the division in the midst of 2021, and said the commission’s enforcement staff had been “undeterred by the challenges of the pandemic” in their attempts to bring cases. 

“This year has seen a number of critically important and first-of-their-kind enforcement actions, as well as record-breaking achievements for our whistleblower program, which we expect will lead to even more successful actions in the future,” he said.

The commission found the total money ordered from enforcement actions decreased from fiscal 2020 to 2021, from about $4.7 billion to approximately $3.8 billion (though this was in the midrange of the total money in the previous five fiscal years). The amount of penalties actually jumped from about $1.1 billion to more than $1.4 billion in the 2021 time period, which was the highest amount of penalties since 2016. However, a 33% drop in the amount of disgorgement from 2020 to 2021 contributed to the cumulative decrease.

In its retrospective, the SEC highlighted several first-of-their-kind enforcement actions, including pursuing firms for failing to file and deliver their Form Customer Relationship Summary (CRS), the first actions connected to the required document implemented in tandem with Regulation Best Interest last year. The commission also brought inaugural actions involving securities using decentralized finance tech and involving securities violations on the dark web

Kurt Wolfe, an attorney in the SEC Enforcement Practice at the law firm Quinn Emanuel Urquhart & Sullivan, said people shouldn’t be shocked that the overall number of actions declined. While it was to be expected in a year where there was turnover stemming from a change in administrations, Wolfe acknowledged that the overall number was down considerably more than anyone expected. But the increase in the number of standalone cases was also notable, and the commission and enforcement division had placed greater focus on that metric in recent years, according to Wolfe.

“The fact that they’re keeping pace or even improving on the number of standalone actions, I think, is kind of impressive and shows that the staff really did continue apace despite the turnover that may come with the change in administration,” he said. “Given the tone of the remarks coming out of the Enforcement Division, including from Director Grewal and (Deputy Director of Enforcement) Sanjay Wadhwa, we should expect the numbers are just going to climb and climb.”



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