December 5, 2021

Volume XI, Number 339

Advertisement
Advertisement

December 03, 2021

Subscribe to Latest Legal News and Analysis

December 02, 2021

Subscribe to Latest Legal News and Analysis
Advertisement

Key Trends: SEC Enforcement Activity: Public Companies and Subsidiaries—Fiscal Year 2020 Update

Following a decline in SEC enforcement activity during the early phases of COVID-19, activity ramped up during the second half of FY 2020. The SEC filed nearly one-third of all FY 2020 public company and subsidiary actions in September. Issuer Reporting and Disclosure allegations reemerged as the dominant allegation faced by public company and subsidiary defendants, accounting for nearly half of actions filed.

Enforcement against public companies and subsidiaries slowed during the early phases of the COVID‑19 pandemic in the spring. However, after three consecutive months of three or fewer actions per month, enforcement activity began to increase in June (five actions). Similar to recent years, FY 2020 ended with a flurry of activity in which the SEC filed 18 of the 61 total actions during the last two weeks.

The SEC established a Coronavirus Steering Committee.  One of the committee’s tasks is to “proactively identify and monitor areas of potential misconduct associated with COVID-19.” The SEC opened more than 150 COVID-related inquiries or investigations between mid-March 2020 and September 2020.[i]

While the SEC filed six enforcement actions related to COVID-19, these actions are not in SEED since they involved only microcap companies and individuals.[ii]

Issuer Reporting and Disclosure allegations reemerged as the most common allegation type in actions filed against public companies and subsidiaries in FY 2020 with the most actions filed in any fiscal year in SEED.

Cooperation by defendants declined from a FY 2019 record high of 77 percent, bolstered by the Share Class Selection Disclosure Initiative (Share Class Initiative), to 62 percent in FY 2020. The first half of FY 2020, which coincided with the slowdown in new filings, only had cooperation noted in 45 percent of actions against public companies and subsidiaries.

Administrative proceedings accounted for 75 percent of actions against public companies and subsidiaries filed in the first half of FY 2020, the lowest percentage in a half year since the first half of FY 2014. Administrative proceedings increased in the second half of FY 2020 to account for 95 percent of actions, resulting in 89 percent of actions overall in FY 2020.

Figure 1: Key Trends in Public Company and Subsidiary Actions FY 2010–FY 2020

 

FY 2010–FY 2019

Average

1H FY 2020

2H FY 2020

FY 2020

Total

New Actions

64

20

41

61

Issuer Reporting and Disclosure Allegations

36%

60%

44%

49%

Investment Adviser/Investment Company Allegations

15%

15%

27%

23%

Actions Filed as Administrative Proceedings

70%

75%

95%

89%

Defendants with Settlements Noting Cooperation

54%

45%

70%

62%

Defendants with Monetary Settlements Imposed

86%

86%

95%

92%

Average Monetary Settlements Imposed by the SEC

$28 million

$59 million

$13 million

$28 million

Median Monetary Settlements Imposed by the SEC

$4 million

$2 million

$5 million

$4 million

Disgorgement and Prejudgment Interest Imposed
by the SEC in Civil Actions

$285 million

$540 million

$25 million

$565 million

Read the report, SEC Enforcement Activity: Public Companies and Subsidiaries—Fiscal Year 2020 Update.

Read Executive Summary: SEC Enforcement Activity: Public Companies and Subsidiaries


[i]      See “Division of Enforcement Annual Report 2020,” U.S. Securities and Exchange Commission, November 2, 2020, pp. 11–12, https://www.sec.gov/files/enforcement-annual-report-2020.pdf.

[ii]     No public companies or subsidiaries, as defined in SEED, have yet been the target of a COVID-19-related action. See “Division of Enforcement Annual Report 2020,” U.S. Securities and Exchange Commission, November 2, 2020, pp. 25–26, https://www.sec.gov/files/enforcement-annual-report-2020.pdf.

Copyright ©2021 Cornerstone ResearchNational Law Review, Volume X, Number 334
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Sara E. Gilley, Cornerstone Research, securities and white collar litigation
Vice President

Sara Gilley specializes in securities and white-collar litigation. She consults on economic and financial issues related to federal class actions, corporate investigations, and government enforcement activity. Ms. Gilley also has experience in matters brought under international securities laws. She works with clients in all phases of litigation, including motion to dismiss, class certification, merits, and testimony.

Ms. Gilley manages the firm’s research related to enforcement actions by the Securities and Exchange Commission (SEC), and...

312-345-7377
Heather B. Lazur, Cornerstone Research, economic and financial instruments
Principal

Heather Lazur specializes in cases involving a range of economic and financial issues and instruments, including securities class actions, and cases involving investment performance and strategy, valuation, mutual funds, and mortgage-backed securities.

Securities and valuation

In securities cases, Ms. Lazur has addressed class certification, market efficiency, loss causation, and damages. Ms. Lazur also has experience valuing companies, products, and lost profits. The matters she has worked on have...

617-927-3011
Lindsay Schick Senior Manager Cornerstone Research
Senior Manager

Lindsay Schick provides consulting services in litigation involving economic and financial issues. Her primary areas of focus include investment management, ERISA, mortgage lending and securitization, consumer finance, general damages, and the statistical analysis of big data.

312-345-7323
Advertisement
Advertisement
Advertisement