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Volume XII, Number 27

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SEC Enforcement’s 2020 Annual Report Reflects Shifting Priorities for Fund Managers: Four Key Takeaways

On Monday the SEC announced its enforcement results for FY 2020, accompanied by a report from the Director of its Division of Enforcement. This report confirms what we have seen over the past year for private fund managers: although OCIE has been more active on adviser examinations, we’ve seen a bit less enforcement activity. Yet in spite of the headwinds posed by the global pandemic, the Commission brought 715 enforcement actions in FY 2020, representing only a 17% decrease from FY 2019. It also obtained record-breaking monetary remedies with total penalties and disgorgement reaching $4.68 billion, an 8% increase from 2019.

  • Investment advisor cases accounted for 87 standalone actions in the past year. The percentage of cases involving investment advisors or investment companies decreased, shrinking to 21% from 36% in 2019, largely due to the conclusion of the Share Class Selection Disclosure Initiative.

  • Insider trading cases increased slightly from 6% of the actions filed in 2019 (30 actions) to 8% of the 2020 actions (33 actions).

  • The impact of COVID-19 on the Commission was substantial — by mid-March the entire division had shifted to telework and began conducting all operations remotely. While this was the fewest Enforcement actions since 2013, when the Commission brought 686 actions, the relatively slight decrease in actions is notable, especially considering that the Commission brought 492 enforcement actions after the transition to telework.

  • Relatedly, the Commission received 23,650 TCRs (tips, complaints, and referrals) in 2020, a substantial increase over the 16,850 TCRs received in 2019. The increase seems largely driven by the pandemic, as the number of TCRs received between mid-March and the end of the fiscal year represented a 71% increase from the same time period in 2019. Notably, the Commission opened more inquiries and investigations than it had in 2019.

Enforcement continues to focus on retail investor protection. The Division established a Coronavirus Steering Committee to proactively identify and monitor areas of potential misconduct associated with COVID-19. By the end of the fiscal year the Division had opened more than 150 COVID related inquiries or investigations, many of which remain ongoing.

The Annual Report reiterated the Commission’s continued focus on insider trading and other illegal trading activities. In particular, the SEC highlighted the importance of “robust corporate controls and compliance policies around the use and safeguarding of material nonpublic information.” We expect Enforcement to continue to look for MNPI cases involving fund managers, particularly where investment professionals, as part of their employment, come into contact with non-public information.

Enforcement Actions Filed in Fiscal Years 2015 to 2020
  FY 2020 FY 2019 FY 2018 FY 2017 FY 2016 FY 2015
Standalone Enforcement Actions 405 526 490 446 548 508
Follow-On Admin. Proceedings 180 210 210 196 195 167
Delinquent Filings 130 126 121 112 125 132
Total Actions 715 862 821 754 868 807
Disgorgement and Penalties Ordered (in billions) $4.68 $4.35 $3.95 $3.79 $4.08 $4.19

Keep in mind that the presidential election results may lead to a different Commission composition with different priorities, particularly in the fund space.

© 2022 Proskauer Rose LLP. National Law Review, Volume X, Number 309
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About this Author

Joshua Newville, Proskauer Rose, regulatory enforcement attorney, industry compliance legal counsel, securities exchange commission lawyer
Partner

Joshua M. Newville is a partner in the Litigation Department in New York. His practice focuses on commercial litigation and regulatory investigations. Mr. Newville advises companies and individuals in securities litigation and compliance matters. He also focuses on internal investigations and enforcement matters. Prior to joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset...

212-969-3336
Samuel Waldon, Proskauer Law Firm, Washington DC, Corporate Law and Litigation Attorney
Partner

Sam Waldon is a partner in the Litigation Department and a member of the Securities Litigation, White Collar Defense & Investigations and Asset Management Litigation Groups.

Sam’s practice focuses on securities litigation, enforcement and regulatory matters. He represents corporations and financial institutions, and their officers, directors and employees, in investigations, exams, internal investigations and litigation. Sam has in-depth experience in a broad range of Securities and Exchange Commission (SEC) enforcement matters, including...

202-416-6858
Brian Hooven, Proskauer, Litigation, Expert Witness Qualifications Attorney
Associate

Brian Hooven is an associate in the Litigation Department.

  • Columbia Law School, J.D., 2015 

  • Journal of Law and Social Problems

  • University of Michigan, B.S., 2011

212.969.3212
Ariella E. Muller Associate Related  Litigation
Associate

Ariella Muller earned her J.D. from Columbia Law School, where she was a notes editor for the Journal of Transnational Law. While at Columbia, Ariella worked at the Manhattan District Attorney’s Office, the Queens District Attorney’s Office and the U.S. Attorney’s Office for the Eastern District.

212-969-3563
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