November 17, 2022
My new book promo says, “Bill is on a mission to educate worldwide investors to become market-fluent and independent of Wall Street. His motto is, “Principal owners of capital must take control back from the all-powerful, self-interested, and egregiously conflicted robber barons of the financial services industry. People need to learn how to invest in securities appropriately.”
Why do you think people need to seek market fluency? I’ll ask the question differently: Do you dispute my statement that the all-powerful, self-interested, and egregiously conflicted robber barons of the financial services industry should be blamed for ripping off people who are not financially sophisticated? Or, as I ask in the title of this article, are $6.4 Billion in SEC penalties this year enough?
With all its rules, training, gatekeepers, and compliance oversight in the world, the US financial services industry paid the bulk of these fines. They do not even contest the charges. Think about that.
Vigilant Complance, LLC published the following article today:
SEC Enforcement Results for Fiscal Year 2022
The SEC announced on November 15th a large summary of their enforcement actions for the fiscal year of 2022.
The SEC increased its enforcement actions by 9% this year, with 760 total actions filed. Of those filed, 462 were new enforcement actions, while 129 were against delinquent filers. 169 proceedings occurred to bar or suspend individuals from certain securities markets.
Increasing by almost $3 billion since 2021, almost $6.4 billion was collected in penalties and disgorgement.
Additionally, 2022 had the highest amount of whistleblower awards in history. This is a summary of the SEC’s actions in different enforcement roles.
Fifteen Enforcement Takeaways from the SEC for 2022
- Robust enforcement
- Enforcement programs focused on deterring future violations, creating accountability from major institutions, and forcing compliance undertakings that can serve as a guide for other firms that require a change to remain compliant.
- Penalties, Undertakings, and Admissions
- Penalties from the SEC were severe enough to ensure firms knew that penalties would not simply be a cost of doing business.
- Firms were required to undertake major compliance overhauls by retaining compliance consultants and conducting comprehensive reviews of policies and procedures.
- Individual Accountability
- 2/3 of stand-alone actions named a specific individual as a defendant or respondent.
- Senior Executives in many firms were forced to return bonuses and compensation after misconduct was discovered at the firm.
- Parallel Investigations with Criminal Law Enforcement
- The enforcement division routinely referred violators to criminal authorities who acted with misconduct intentionally or were recidivists.
- Senior executives had charges filed against themselves for alleged insider trading, fraudulent schemes, etc.
- Success at Trial and In Litigation
- 12 out of 15 trials ended with favorable verdicts on behalf of investors.
- Cases involved investment, securities, registration, and private investment fraud, amongst other violations.
- Rewarding Cooperation
- Cooperation with enforcement investigations that significantly aided the SEC was considered when remedies were ordered.
- Corporations that self-reported, implemented extensive remediation, and acted with complete transparency typically had their penalties greatly reduced or never imposed.
- Rewarding and Protecting Whistleblowers
- SEC issued almost $229 million over 103 awards and received more than 12,300 tips in the fiscal year 2022
- Firms attempting to contain whistleblowers through restrictive confidentiality agreements with employees and investors were heavily penalized and litigated against.
- Financial Fraud and Issuer Disclosure
- SEC has spent many hours and resources pursuing firms and employees who violate laws on disclosures through misleading or inaccurate material.
- The SEC investigated and charged Firms for misleading investors about operating costs, investment strategies, inflated revenues, etc.
- Focus on Gatekeepers
- Members of the industry with significant responsibility to maintain trust in the system (Auditors, Lawyers, Transfer Agents, etc.) had numerous enforcement actions brought against them for actions that eroded trust in the system.
- Audit firms violating professional standards and allowing clients to manipulate their audits were charged; the highest penalty against an audit firm in SEC history was ordered this year.
- The former Cyber Unit has been renamed to the Crypto Assets and Cyber Unit, with the SEC doubling the unit’s staffing.
- Misconduct charges for failure to register retail cryptocurrency offers and sales (first-of-its-kind) with the SEC, participating in the crypto pyramid and Ponzi schemes, and insider trading have all been issued as the SEC continues to investigate the cryptocurrency space.
- Cyber Security and Compliance
- Firms that failed to comply with recordkeeping requirements and the safeguarding of customer information met scrutiny from the SEC.
- The largest penalties hit firms that had extensive failures over large periods of time due to insufficient policies and procedures to protect investors.
- Private Funds
- Private Funds have unique features that expose them to issues such as conflict of interest, fees and expenses, custody, and controls of material nonpublic information
- The SEC charged multiple private fund advisors for fraudulent schemes involving hiding risk, misrepresentation of fund performance, and manipulation of fees and expenses.
- Market Abuses
- Market manipulation, cherry-picking, and insider trading were heavily charged by the SEC in 2022.
- Senior executives and multiple investment advisors found themselves being investigated for insider trading, manipulative schemes to defraud investors, and/or cherry-picking profitable trades into their personal accounts.
- Public Finance Abuse
- The SEC filed its first charges for broker-dealers violating the registration rule and underwriters for failing to obtain disclosures from investors when selling new issue municipal bonds.
- Foreign Corrupt Practices Act
- The SEC remains committed to preventing the issuing of securities by companies that engage in corrupt practices abroad.
- Mozambique, Turkey, UAE, India, and Brazil were some countries where firms attempted to engage in corrupt practices; the companies were correctly charged in the United States.
In the absence of new securities legislation that precludes the possibility of conflict of interest dealings, the only solution is to educate the public on investing and trading in securities. For that reason, I authored Stock Market Literacy.