Press Releases
Number of New SEC Enforcement Actions against Public Companies Rose 30% in FY 2019
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The majority of the investment adviser/investment company actions were part of the Share Class Initiative and, as such, the monetary settlements did not include a civil penalty.
More than half of new actions targeted investment advisers/investment companies or broker dealers.
The number of new U.S. Securities and Exchange Commission enforcement actions against public companies and subsidiaries in fiscal year 2019 rose more than 30% over the previous fiscal year, driven by self-reporting under the SEC’s Share Class Selection Disclosure Initiative (Share Class Initiative), according to a report released today by the NYU Pollack Center for Law & Business and Cornerstone Research.
The report, SEC Enforcement Activity: Public Companies and Subsidiaries—Fiscal Year 2019 Update, analyzes data from the Securities Enforcement Empirical Database. The report shows that the SEC filed 95 new actions against public companies and subsidiaries in FY 2019, up from 72 in the previous year and the highest number in any fiscal year since SEED began tracking the data in FY 2010.
Enforcement actions stemming from the Share Class Initiative accounted for 27% of the total actions against public companies and subsidiaries in FY 2019, which ended September 30. The initiative addresses investment advisers’ failure to make required disclosures related to fees received for recommending certain mutual funds.
“As part of the SEC’s stated focus on retail investors, more than half of new actions against public companies and subsidiaries in FY 2019 targeted investment advisers/investment companies or broker dealers,” said Stephen Choi, the Murray and Kathleen Bring Professor of Law at the NYU School of Law and director of the Pollack Center for Law & Business. “The majority of the investment adviser/investment company actions were part of the Share Class Initiative and, as such, the monetary settlements did not include a civil penalty.”
Monetary settlements in public company and subsidiary enforcement actions totaled $1.5 billion in FY 2019, down substantially from more than $2.4 billion in FY 2018 but consistent with both the FY 2010–FY 2018 average and median total of $1.5 billion.
“Issuer reporting and disclosure actions against public companies helped to drive the record number of actions,” said Cornerstone Research Vice President Sara Gilley, a report coauthor. “This is similar to the high number of actions in FY 2016, which were also driven in part by an increase in these types of matters.”
Additional Highlights
The Share Class Selection Disclosure Initiative (Share Class Initiative) “is intended to identify and promptly remedy” situations “in which an investment advisor failed to make required disclosures relating to its selection of mutual fund share classes that paid the advisor (as a dually registered broker-dealer) or its related entities or individuals a fee pursuant to Rule 12b-1 of the Investment Company Act of 1940 (‘12b-1’ fee) when a lower-cost share class for the same fund was available to clients.”
About the Securities Enforcement Empirical Database (SEED)
The Securities Enforcement Empirical Database (SEED) tracks and records information for SEC enforcement actions filed against public companies and their subsidiaries. SEED also includes information on individuals who are named defendants in these actions. Created by the NYU Pollack Center for Law & Business in collaboration with Cornerstone Research, SEED facilitates the analysis and reporting of SEC enforcement actions through regular updates of new filings and settlement information for ongoing enforcement actions.
About the NYU Pollack Center for Law & Business
Established in 1997, the NYU Pollack Center for Law & Business is a joint venture of the NYU School of Law and the Stern School of Business. Its mission is to enrich the teaching curriculum at both schools in areas where law and business intersect; to facilitate professional interaction and academic research by faculty who share an interest in the structure, regulation, and function of the market economy; and to contribute to the public welfare by supporting scholarship that assists governmental and private policymakers in their pursuit of enhanced business productivity.
About Cornerstone Research
Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for more than thirty years. The firm has over 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.
The report, SEC Enforcement Activity: Public Companies and Subsidiaries—Fiscal Year 2019 Update, analyzes data from the Securities Enforcement Empirical Database. The report shows that the SEC filed 95 new actions against public companies and subsidiaries in FY 2019, up from 72 in the previous year and the highest number in any fiscal year since SEED began tracking the data in FY 2010.
Enforcement actions stemming from the Share Class Initiative accounted for 27% of the total actions against public companies and subsidiaries in FY 2019, which ended September 30. The initiative addresses investment advisers’ failure to make required disclosures related to fees received for recommending certain mutual funds.
“As part of the SEC’s stated focus on retail investors, more than half of new actions against public companies and subsidiaries in FY 2019 targeted investment advisers/investment companies or broker dealers,” said Stephen Choi, the Murray and Kathleen Bring Professor of Law at the NYU School of Law and director of the Pollack Center for Law & Business. “The majority of the investment adviser/investment company actions were part of the Share Class Initiative and, as such, the monetary settlements did not include a civil penalty.”
Monetary settlements in public company and subsidiary enforcement actions totaled $1.5 billion in FY 2019, down substantially from more than $2.4 billion in FY 2018 but consistent with both the FY 2010–FY 2018 average and median total of $1.5 billion.
“Issuer reporting and disclosure actions against public companies helped to drive the record number of actions,” said Cornerstone Research Vice President Sara Gilley, a report coauthor. “This is similar to the high number of actions in FY 2016, which were also driven in part by an increase in these types of matters.”
Additional Highlights
- The SEC brought the highest number of actions with issuer reporting and disclosure allegations (28 actions) in the 10 years covered by SEED.
- In FY 2019, the SEC noted cooperation by 76% of defendants, a record-high percentage and substantially higher than the FY 2010–FY 2018 average of 51%.
- In the first half of FY 2019, the SEC brought 100% of enforcement actions as administrative proceedings; in the second half, this dropped to 84%.
- Challenges to the constitutionality of protections preventing removal of the SEC’s administrative law judges (ALJs) continued in FY 2019 with a new defendant filing challenges following the August 2019 dismissal of Lucia v. SEC.
- The largest settlement amount imposed in a public company or subsidiary action in FY 2019 was $147 million, the lowest maximum in a fiscal year in SEED. The average monetary settlement amount for public and subsidiary actions during the period was $16 million.
The Share Class Selection Disclosure Initiative (Share Class Initiative) “is intended to identify and promptly remedy” situations “in which an investment advisor failed to make required disclosures relating to its selection of mutual fund share classes that paid the advisor (as a dually registered broker-dealer) or its related entities or individuals a fee pursuant to Rule 12b-1 of the Investment Company Act of 1940 (‘12b-1’ fee) when a lower-cost share class for the same fund was available to clients.”
About the Securities Enforcement Empirical Database (SEED)
The Securities Enforcement Empirical Database (SEED) tracks and records information for SEC enforcement actions filed against public companies and their subsidiaries. SEED also includes information on individuals who are named defendants in these actions. Created by the NYU Pollack Center for Law & Business in collaboration with Cornerstone Research, SEED facilitates the analysis and reporting of SEC enforcement actions through regular updates of new filings and settlement information for ongoing enforcement actions.
About the NYU Pollack Center for Law & Business
Established in 1997, the NYU Pollack Center for Law & Business is a joint venture of the NYU School of Law and the Stern School of Business. Its mission is to enrich the teaching curriculum at both schools in areas where law and business intersect; to facilitate professional interaction and academic research by faculty who share an interest in the structure, regulation, and function of the market economy; and to contribute to the public welfare by supporting scholarship that assists governmental and private policymakers in their pursuit of enhanced business productivity.
About Cornerstone Research
Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for more than thirty years. The firm has over 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.