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SEC Enforcement Actions against Public Companies Continue Sharp Decline

Only 15 new actions filed in the first half of FY 2018

The low rate of SEC actions against public company and subsidiary defendants has continued through the first half of FY 2018. This is the lowest total since the first half of FY 2013. — Stephen Choi

U.S. Securities and Exchange Commission enforcement actions against public companies and their subsidiaries continued their downward trend through the first half of the 2018 fiscal year. SEC enforcement activity is on pace to reach the lowest level since 2013, 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—Midyear FY 2018 Update, analyzes data from the Securities Enforcement Empirical Database (SEED). This is the first of these reports to include data on individuals who are named defendants in public company and subsidiary actions.

In the first half of FY 2018 (ending March 31, 2018) the SEC filed only 15 new enforcement actions against public companies and their subsidiaries—a 67 percent decrease from the 45 filed in the first half of FY 2017. The SEC filed 17 actions against public companies and their subsidiaries in the second half of FY 2017.

“The low rate of SEC actions against public company and subsidiary defendants has continued through the first half of FY 2018. This is the lowest total since the first half of FY 2013,” noted 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. “A narrow range of industries were targeted, with finance, insurance, and real estate accounting for almost 70 percent of new actions.”

In 1H FY 2018, 33 percent of the public company and subsidiary actions involved individuals as named defendants. The percentage of all new actions brought as administrative proceedings decreased to 80 percent from 94 percent in 2H FY 2017.

“Both total and average monetary settlements were the lowest semiannual amounts in SEED’s dataset. Total monetary settlements declined to $65 million and the average settlement was only $4.3 million in the first half of FY 2018,” said David Marcus, senior vice president and head of Cornerstone Research’s finance practice. “In addition, the largest monetary settlement of $14 million was by far the lowest in any half year.”

Highlights
  • Of the five new actions with individual defendants in 1H FY 2018, four involved issuer reporting and disclosure allegations.
  • Two public company and subsidiary actions in 1H FY 2018 included allegations of steering investors to higher fee share classes of mutual funds, examples of the SEC’s announced focus on protecting retail investors. 
  • In 1H FY 2018, 87 percent of public company and subsidiary actions were resolved on the same day they were initiated.
  • In the first half of FY 2018, 56 percent of public company and subsidiary defendants cooperated with the SEC.

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 over 25 years. The firm has 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.

Twitter: @Cornerstone_Res