While past performance cannot guarantee comparable future results, the information the U.S. Securities and Exchange Commission’s Division of Enforcement just released in its annual report for its 2020 fiscal year is a must read for trendspotters who want to know what might be top of mind for the SEC in the months to come.
To quote Shakespeare, “The past is prologue.” Over the short term, it is unlikely the SEC’s enforcement efforts will deviate from its main areas of focus during the 12-month period which ended September 30, 2020. Such familiar topics as securities offerings, investment advisory and investment company issues, accounting issues, broker-dealer offerings, and insider trading should continue to take up a sizeable part of the Commission’s enforcement efforts, with the overall goal of protecting Investors, as it grapples with the COVID-19 pandemic.
The onset of the coronavirus prompted the Division of Enforcement to telework and conduct all operations remotely. As a result, the 715 enforcement cases the SEC brought during the fiscal year were the fewest since 2013. But that didn’t prevent the SEC from obtaining judgments and orders that reached a record $4.68 billion in disgorgements and penalties and returning an additional $600 million to harmed investors. Over the last six years, the SEC has obtained more than $25 billion in judgments.
COVID-19 Continues to Complicate Matters
Going forward, what should be of considerable interest to compliance personnel is the fact that the SEC logged a 71% spike in the number of tips, complaints, and referrals (TCRs) between the onset of the coronavirus in mid-March through the end of September. Accordingly, the Division of Enforcement opened more inquiries and investigations than it did in 2019.
“The SEC received more than 23,000 TCRs during its fiscal year, an increase of more than 7,000,” said James L. Smith, Senior Compliance Consultant for Core Compliance and Legal Services. “That illustrates that people are more vigilant and more aware of fraudulent activity. Unfortunately, it also indicates that there is more fraudulent activity going on."
“Fraud and cybersecurity risks have increased dramatically since COVID-19 entered our lives. People are working from home to the extent that they can and home networks tend to be less secure and people are less vigilant compared to an office environment.”
Mobilizing quickly to combat the many complications created by the pandemic, the Division of Enforcement established a Coronavirus Steering Committee to proactively identify and monitor areas of potential misconduct. By the end of September, the SEC already had opened more than 150 COVID-related inquiries or investigations.
As we all can attest, 2020 has put more of an emphasis on being prepared for the unexpected. The Core Compliance Team is always ready and available to assist you and your firm assess the strength of your compliance program, especially during a pandemic and year-end. If you or your firm would like any assistance or any additional information, please contact us here or at 619.278.0020.
Be on the lookout for our upcoming blog posts where we discuss additional helpful hints for 2021.