The Securities and Exchange Commission announced that in fiscal year 2015, it continued to build a strong record of first-of-their-kind cases that spanned the spectrum of the securities industry. In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.
Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.
In fiscal year 2014, the SEC filed 755 enforcement actions and obtained orders totaling $4.16 billion in disgorgement and penalties. Of the 755 enforcement actions filed in fiscal year 2014, 413 were independent actions for violations of the federal securities laws and 342 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.
Vigorous and comprehensive enforcement protects investors and reassures them that our financial markets operate with integrity and transparency, and the Commission continues that enforcement approach by bringing innovative cases holding executives and companies accountable for their wrongdoing sending clear warnings to would-be violators. The Enforcement Division's leveraging of data, quantitative analytics and the expertise of our other divisions contributed significantly to this year's very strong results."
Said Andrew J. Ceresney, Director of the SEC's Enforcement Division:
The Division's hard work, tremendous energy, and efficiency uncovered significant misconduct during the past fiscal year, and helped bring a significant number of high-impact, first-of-their-kind actions. I continue to be proud of the Division's record of accomplishments, and we have already continued to pave new ground in the new fiscal year.
Overview of SEC Enforcement in Fiscal Year 2015
Combating Financial Fraud and Enhancing Issuer Disclosure
Held attorneys, accountants and other gatekeepers accountable for failures to comply with professional standards.
In the first non-independence case against a major audit firm since 2009, charged BDO USA, LLP with issuing false and misleading unqualified audit opinions about the financial statements of General Employment Enterprises, and five of the firm's partners, including national office personnel, for their roles in the deficient audits.
In the SEC's case against MusclePharm Corp., the SEC charged the company's former audit committee chair who substituted his wrong interpretation of SEC rules for those of an outside expert, resulting in an incorrect disclosure.
Charged 14 accountants and 10 attorneys for their roles in aiding perpetrators of microcap fraud.
Obtained the largest penalty to date against an alternative trading system, ITG Inc. and AlterNet Securities, Inc., to settle charges that they operated a secret trading desk and misused the confidential trading information of dark pool subscribers.
Charged UBS Securities LLC with disclosure failures and other securities law violations related to the operation and marketing of its dark pool.
In the first case involving high frequency trading manipulation, sanctioned Athena Capital Research, a New York City-based high frequency trading firm.
In the first case principally focusing on stock exchange order types and the largest penalty for an exchange, charged two exchanges formerly owned by Direct Edge with failing to accurately describe their order types in SEC rule filings.
Rooting Out Insider and Abusive Trading Schemes through Innovative Uses of Data and Analytics
Charged 87 parties in cases involving trading on the basis of inside information. Many of these cases involved complex insider trading rings which were cracked by Enforcement's innovative uses of data and analytics to spot suspicious trading.
Charged dozens of defendants in an alleged scheme to profit from hacked nonpublic information about corporate earnings announcements. The underlying investigation was developed through the use of innovative analytical tools designed to find suspicious trading patterns and expose misconduct. Since filing the emergency action, the SEC froze more than $70 million and obtained a $30 million settlement from two of the defendants.
Uncovering Misconduct by Investment Advisers and Investment Companies
Brought a first-ever action charging a private equity adviser with misallocating so-called "broken deal" expenses against Kohlberg Kravis Robert & Co., related to the firm's misallocation of more than $17 million in expenses to its flagship private equity funds in breach of its fiduciary duty.
Brought a first-ever action for failure to report a material compliance matter to a fund board against Blackrock Advisors LLC, arising from the firm's failure to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager. The SEC also charged Blackrock's former CCO.
Charged an investment management firm F-Squared Investments, as well as its CEO, for defrauding investors through false performance advertising about its flagship product.
Charged a Wisconsin-based investment advisory firm and its owner for fraudulently "cherry-picking" winning options trades which were identified with help from the agency's Division of Economic and Risk Analysis (DERA), which conducted a statistical analysis to determine whether the trades at issue could have resulted from a coincidental or lucky combination of trades.
Brought additional significant microcap and market manipulation actions, including charges against five offshore entities for offering and selling unregistered penny stocks into the public markets; charges against a securities lawyer who planned and implemented market manipulation schemes; and charges against a microcap promoter for selling more than 83 million penny stock shares that he secretly obtained through at least 10 different offshore front companies.
Halting International and Affinity-Based Investment Frauds
Brought a first-ever action for violating Exchange Act Rule 21F-17, which prohibits the use of confidentiality agreements or other actions to impede a whistleblower from communicating with the SEC, against KBR Inc.
Demanding Admissions in Important Cases Enhancing Public Accountability
Charles Kokesh was found liable for defrauding four business development companies of tens of millions of dollars. The court entered a final judgment against Mr. Kokesh, ordering him to pay over $55 million in monetary relief, and imposed other ancillary relief.
Willie Gault was found liable for filing false certifications with the SEC and knowingly circumventing the internal controls of HeartTronics, Inc., a company that claimed to sell a heart monitoring device, while Mr. Gault served as that company's co-CEO.
George Levin was found liable for fraud in connection with his and his companies' purchase of discounted legal settlements in the form of promissory notes and limited partnership interests offered by Ft. Lauderdale attorney Scott Rothstein, which turned out to be non-existent and comprised one of the largest-ever Ponzi schemes in South Florida. Following the verdict, the court entered judgment against Mr. Levin and ordered him to pay approximately $50 million in disgorgement, prejudgment interest and a penalty, and imposed other ancillary relief.
Breakout of Enforcement Actions for Fiscal Years 2013 through 2015
The following table breaks down the SEC's enforcement results for FY 2013 through 2015:
Independent Enforcement Actions
Disgorgement and Penalties Ordered
From 2005 to 2012, independent actions filed by the SEC (excluding contempt actions, which have been excluded from enforcement action numbers for the last three fiscal years) ranged from approximately 318 to 445, and monetary remedies ordered ranged from $1 billion to $3.1 billion.
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