Securities Violations Increase


The Securities and Exchange Commission says it has stepped up its enforcement activities during the 2011 fiscal year ended September 30, filing a record 735 enforcement actions resulting in disgorgements and penalties totaling $2.806 billion, according to InvestmentNews (“SEC sets record in crackdown on advisers, B-Ds”). It reportedly filed 146 enforcement actions against investment advisers and investment companies in 2011, a 30% increase over last year and 200% more than 2002 when the SEC filed 52 cases. With regard to broker-dealers, the SEC says it filed 112 enforcement actions, a 60% increase over 2010.

The SEC attributed the increased activity to a reorganization of its Enforcement Division. The reorganization included overhauling the tips and complaints process and forming specialized units like a prosecutor’s office has.

Similarly, state regulators reported a 51% increase in enforcement actions that led to $14.1 billion being returned to investors.

The SEC emphasized 15 actions it filed against executives involved in the financial crisis during fiscal year 2011. In the last two and a half years, the SEC says it filed 36 separate actions against 81 defendants resulting in $1.97 billion in disgorgement, according to the article.

Critics, including federal judges who have been asked recently to approve such settlements, have expressed concern that the SEC is letting alleged corporate wrongdoers off too lightly, and not pursuing culpable individuals.

In that regard, Citigroup recently settled SEC charges that it misled investors about $1 billion worth of risky collateralized debt obligations for $285 million. But in 2010, the SEC extracted a higher $550 million settlement from Goldman Sachs for a similar but lesser offense (Citigroup allegedly selected the bad assets it shorted for a profit whereas Goldman merely allowed a favored hedge fund manager to do that, yet paid more to settle).

The SEC may simply be stretched too thin. Especially due to its expanded role under the Dodd-Frank financial reform act, the SEC needs more resources. “We could gainfully employ many more people in enforcement and examination,” Ms. Schapiro said at a SIFMA (securities industry) conference.

But concerns have been expressed that an even greater problem is stems from the revolving door between SEC upper management and Wall Street, which fosters a relationship that is inappropriately collegial and not adversarial enough. As former New York attorney general Eliot Spitzer once put it, the SEC serves too many lunch invitations to Wall Street executives when it ought to be serving subpoenas.

Page Perry is an Atlanta-based law firm with over 150 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. For further information, please contact us.