Just this week, the Securities and Exchange Commission announced its enforcement results from fiscal year 2022. The Commission recovered a record $6.4 billion in penalties and disgorgement from companies and individuals. The announcement touted the 760 total enforcement actions in FY 2022—a nine percent increase from the year before—and summarized areas of innovation and growth within the Enforcement Division. Two such areas are familiar refrains that are worth highlighting: (1) the SEC leveraging its investigative process—emphasizing its use of data analytics—to identify suspicious activity; and (2) its penalties against “gatekeepers” (i.e., individuals and companies who owe a heightened duty of trust and responsibility to clients and investors).

Continue Reading Play it again, SEC: Two Familiar Refrains from the FY 2022 Enforcement Results

Recent SEC actions confirm that the SEC is making good on its promise to focus attention on the municipal bond market and the disclosure obligations of municipalities. According to the SEC, investors hold approximately $3.7 trillion dollars in municipal debt today, in contrast to just $20 billion in 1945. In light of the increase in municipal bond debt, the SEC conducted a comprehensive review of the municipal securities market in 2012. That same year, the SEC issued recommendations, including potential legislative changes and suggested rulemaking, to improve the municipal securities market and to enhance disclosures available to investors. More recently, in March the SEC Enforcement Division launched the Municipalities Continuing Disclosure Cooperation (“MCDC”) initiative. The MCDC initiative provides standardized settlement terms for issuers and underwriters in the municipal bond market who self-report violations of disclosure obligations. Importantly, the MCDC initiative permits issuers who were already under investigation the opportunity to accept the MCDC standard terms. The MCDC initiative expires on September 10. A recent California school district case, involving the Kings Canyon Joint Unified School District (“Kings Canyon”) was the first case to be resolved under the MCDC initiative.
Continue Reading The SEC’s Increasing Focus on the Municipal Bond Market

It is no secret that whistleblower complaints are on the rise. According to the SEC Office of the Whistleblower’s (OWB) recently released annual report, during the 2013 fiscal year, OWB received more than 3,200 whistleblower complaints, tips, and referrals—up from 3,001 in 2012 and just 334 in 2011 (the year OWB was created). Similarly, in fiscal year 2013, DOJ saw a record 752 qui tam complaints filed under the False Claims Act (FCA) whistleblower provision. Whistleblower awards are also on the rise. In fiscal year 2013, the DOJ recovered $3.8 billion in settlements and judgments based on the FCA. More than three quarters of the DOJ’s recovery—$2.9 billion—was related to whistleblower lawsuits, with whistleblowers receiving $345 million of the recovery. In September 2013, the SEC OWB paid more than $14 million to a single whistleblower. The SEC OWB also recently announced that it paid an additional $150,000 to the recipient of the first whistleblower award, for a total of more than $200,000. But not all whistleblowers receive large payouts, and many face retaliation for their actions. A recent Fourth Circuit decision makes the relatively light burden of proving retaliation more difficult. And an upcoming decision by the Second Circuit could affirm the lower court’s limitations on who can recover whistleblower awards.
Continue Reading Whistleblowers: Boom or Bust?

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are partnering to sponsor regional compliance outreach programs for broker-dealers.  The programs, which launch on April 30 in Denver and Los Angeles, are designed for risk, audit, legal, and compliance professionals who are employed by broker-dealers and will focus on promoting

In the 1987 film “Wall Street,” Gordon Gecko gives a memorable speech in which he declares “that greed, for lack of a better word, is good.  Greed is right, greed works.”  On Wall Street today, one might say that speed is good.  Milliseconds (1/1,000th of a second) and microseconds (1/1,000,000th of a second) matter.  Traders relentlessly pursue methods to access the most current information from Wall Street, employing fiber-optic cable, microwave dishes, and even laser beams.  But is acting upon this virtually-instant data, which may arrive at a high-speed trader’s computer mere milliseconds before the average trader, insider trading?  Some are claiming, “yes.”  After the publication of Michael Lewis’s book Flash Boys: A Wall Street Revolt, allegations are circulating that a speed advantage allows high-speed traders to effectively “front run” other traders.
Continue Reading Speed is Good: But Is High-Speed Trading A Crime?

Based on numbers alone, the SEC’s Whistleblower Program grew significantly in 2013.  According to the Annual Report to Congress on the Dodd-Frank Whistleblower Program, released late last year, the number of whistleblower tips and complaints the Commission received increased from 3,001 in the 2012 fiscal year to 3,238 in the 2013 fiscal year.  The Commission also made its largest whistleblower award to date in 2013, issuing a record $14 million. However, behind these numbers lies another story.  Over the last year, the scope of the Whistleblower Program has been curtailed by judicial rulings narrowing the definition of a protected “whistleblower.”  On the home front, companies have been experimenting with ways to encourage internal reporting, attempting to avoid what can be the serious consequences of an SEC whistleblower claim.  Thus, the SEC has spent much of early-2014 protecting the scope of the Whistleblower Program from perceived attacks on both public and private fronts.
Continue Reading A War on Two Fronts: SEC Steps-Up Efforts to Protect Scope of Its Whistleblower Program

Enforcement officials from the U.S. SEC’s Chicago Regional Office and the U.S. Attorney’s Office for the Northern District of Illinois gathered to discuss their enforcement initiatives at the “SEC & DOJ Hot Topics 2014” program on February 11, 2014.  Local regulators reinforced the theme that in 2014, the SEC will continue to adopt enforcement tools that historically have been used by their counterparts in criminal law enforcement.

The program was among the first public speaking engagements by David Glockner in his new role as director of the SEC’s Chicago Regional Office.  Mr. Glockner was appointed as the Chicago Regional director in November 2013, following an impressive, decades-long career in the Chicago U.S. Attorney’s Office, including 11 years as the criminal division chief.  Joining Mr. Glockner on the panel were regulators Thomas Dunn, a Financial Economist in the SEC’s Division of Economic and Risk Analysis, and Julie Porter, Chief of the Financial Crimes Division at the Chicago U.S. Attorney’s Office.

In discussing the SEC’s 2014 enforcement priorities, Mr. Glockner noted that the economy seems to be “between major financial crises” at the moment, which presents an opportunity for the SEC to set its own agenda – rather than reacting to various market failures.  In setting this agenda, Mr. Glockner warned that companies should expect the SEC to be present in as many of its different areas of regulatory responsibility as possible.  He noted that even activities that have not garnered much attention from the SEC in the recent past may now fall under scrutiny, especially if there is a high potential for misconduct in a previously overlooked area.  He specified that current areas of interest include: (1) accuracy of books and records, earnings reports and investor communications; (2) municipal securities / public pensions; and (3) utilizing staff exams to conduct targeted reviews of risk-based areas.
Continue Reading New Regime at SEC Takes a Page From the Prosecutors’ Playbook