SEC Enforcement is on the rise. The Securities and Exchange Commission recently released its annual report for the year 2018. This focuses on its enforcement-related accomplishments. The Directors said they believe the effectiveness of the program should be measured by assessing the nature, quality, and effects of the Commission’s enforcement actions. They believe they are deterring future harm by bringing meaningful cases that send clear and important messages to market participants.
Of special interest, is the Commission’s emphasis on accountability of individuals. There were 54 entities and 94 individuals in stand-alone actions relating to issuer financial reporting and disclosures in the following categories: revenue and expense recognition problems; faulty valuation and impairment decisions; missing or insufficient disclosures; misappropriation through accounting misrepresentations; inadequate internal controls; and misconduct by financial reporting gatekeepers.
The report emphasizes that in every enforcement action, they seek appropriately tailored remedies that further enforcement goals. In addition to disgorgement and penalties, there are a wide array of potential remedies available. In each case, the Commission seeks those remedies that will be the most meaningful. Many of the individuals charged in FY 2018 include senior officers at prominent issuers, including CEOs, CFOs, accountants, auditors, and other public figures. Overall monetary remedies obtained by the SEC (penalties and disgorgement) increased by 4 percent from approximately $3.789 billion in FY 2017 to $3.945 billion in FY 2018.2
With the rise in cybersecurity issues, the commission is focusing on the timeliness and accuracy of disclosures and the need to maintain strong internal accounting controls. It has shown its ability and preference to enhance the usual enforcement tools in creative ways to address the current violations. It’s becoming increasingly difficult to get away with many of the violations that were previously overlooked, now that the Commission is using advanced capabilities in data analytics. The Commission has also sought to penalize individuals and require them to pay back illegal gains. In FY 2018, the Commission obtained judgments or orders for disgorgement and/or penalties from over 500 individuals, representing an increase of 9% over FY 2017.
Making sure you are in full compliance with all SEC regulations and procedures is the primary focus of the law firm of Corporate Securities Legal LLP. Your success in going public and staying in good standing with the SEC will bring lasting benefits to your company. We actively help companies navigate through SEC Enforcement issues. If you receive a subpoena from the SEC we are here to help.
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