Securities Enforcement: 2016 Mid-Year Review
Table of Contents Page
I. Executive Summary ................................................... 1
II. Use of Administrative Proceedings ........................... 4
III. SEC Views on Cooperation ....................................... 6
IV. Enforcement Actions Against Compliance
Professionals .............................................................. 8
V. Statute of Limitations for Disgorgement ................... 8
VI. Whistleblower Program ........................................... 10
VII. Admissions .............................................................. 11
VIII. Accounting and Financial Disclosures .................... 12
IX. Investment Advisers and Private Equity .................. 13
X. Broker-Dealers ........................................................ 15
XI. Insider Trading ........................................................ 17
XII. FCPA ....................................................................... 19
XIII. Municipal Bonds...................................................... 21
XIV. Focus on Cybersecurity ........................................... 23
XV. Conclusion ............................................................... 23
I. Executive Summary
The Securities and Exchange Commission (SEC or
Commission) brought over 400 enforcement actions in the
first half of fiscal year (FY) 2016, and is on pace to
surpass its record of 807 enforcement actions in a single
fiscal year, set in FY 2015.1
The SEC brought the vast majority of these enforcement
actions as administrative proceedings (APs). On May 16,
2016, the NYU Pollack Center for Law & Business (NYU)
and Cornerstone Research (Cornerstone) issued a report
(Cornerstone Report) that found that in the first half of FY
2016,2 the SEC brought 88% of actions against public
company and related subsidiary defendants as APs. This
was a substantial increase from FY 2010, when the SEC
only brought 33% of its enforcement actions against public
companies and their subsidiaries as APs.
The Cornerstone Report also found that eight of the top ten
monetary settlements with public company and related
subsidiary defendants from FY 2010 through the first half
of FY 2016 were imposed in APs. The continued
escalation of the SEC’s enforcement activity is particularly
noteworthy given that the SEC continues to function
without its full slate of five Commissioners.
2 | Securities Enforcement 2016 Mid-Year Review
Securities Enforcement 2016 Mid-Year Review
In addition to providing a reminder that the SEC’s
enforcement focus is not likely to wane depending on the
particular makeup of the Commission, the first half of
2016 involved important developments concerning, among
other things, the fairness and constitutionality of the SEC’s
use of APs, the availability of cooperation credit for
defendants, the use of enforcement actions against
compliance professionals, the SEC’s ability to obtain
disgorgement for long past conduct, the whistleblower
program, the SEC’s requirement that certain defendants
admit wrongdoing as a condition of settlement, and civil
enforcement actions involving insider traders, the Foreign
Corrupt Practices Act (FCPA), investment advisers,
cybersecurity, accounting and financial disclosures,
municipal bonds, and broker-dealers. In this mid-year
review, we look at the SEC’s enforcement program
through June 2016.
Use of APs. A Second Circuit panel held that district
courts do not have jurisdiction to consider complaints filed
in federal courts that seek to enjoin SEC APs on
constitutional grounds, making it less likely that there will
be any resolution to the merits of the constitutionality of
APs in the near future. Meanwhile, the SEC sought to
respond to claims that administrative law judges (ALJs)
presiding over APs were biased in favor of the
Commission by releasing the results of an internal
investigation that found no evidence of bias.
Cooperation credit. In the face of skepticism of the value
of self-reporting violations to government investigators,
officials from the SEC and other government agencies
made a number of public statements in the first half of
2016 defending the value and importance of cooperating
with government investigators; at the same time, the SEC
— for the first time — publicly accused a defendant of
violating his cooperation agreement, resulting in the SEC
seeking and obtaining a substantial penalty.
Compliance Professionals. The SEC has continued to
bring enforcement actions against compliance
professionals despite concerns that the actions would have
a chilling effect on the profession. In an attempt to
