October 14, 2019

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SEC Releases FY 2017 Enforcement Results: Maintaining Focus on Individual Accountability and Investment Advisers

Last night, the SEC announced its enforcement results for the Fiscal Year 2017, accompanied by a report from the Co-Directors of its Division of Enforcement.  While the total number of actions was down slightly from 2016, the percentage of those cases involving investment advisers or investment companies – 18% – remained consistent, and amounted to over 80 cases. Similarly, insider trading cases remained about 9% of the actions filed.  The Annual Report specifically highlighted cases where large investment advisers allegedly charged undisclosed or inappropriate fees to clients, focusing on the fiduciary duties advisers owe to clients.  The SEC also noted a case it settled with a large fund adviser, alleging misleading performance marketing and valuation concerns. As we have previously noted, we expect continued SEC attention in the unicorn and startup field relating to valuation and performance during FY 2018.

The results indicate that individual accountability is front and center for the agency’s enforcement staff. With 73% of the Commission’s standalone actions including charges against individuals, Co-Directors of the Enforcement Division asserted that “pursuing individuals has continued to be the rule, not the exception.” Further, the SEC has highlighted its work protecting retail or “Main Street” investors. Based on our interactions with senior SEC staff, this focus on protecting Main Street extends to funds that manage pension and retirement fund investments.

A new development at the end of FY 2017 was the creation of the specialized Cyber Unit, focusing on computer hacking, distributed ledger technology and other cyber-related threats.  Fund managers with exposure to ICOs or distributed ledger technology should prepare themselves—those issuers may face increasing regulatory scrutiny which might impact the value of those investments. For example, the SEC just recently obtained an asset freeze in a case involving allegedly fraudulent ICOs. In addition, the use of alternative data sources is likely to be a focus, particularly in situations where the Enforcement Division suspects that potential material nonpublic information is being used or shared.

Yearly data from 2014 through 2017 is summarized in the table below:

Fiscal Year

2014

2015

2016

2017

Independent/Standalone Actions

413

507

548

446

Follow-on Administrative Proceedings (i.e., SEC Proceedings initiated following conviction or injunction in District Court)

232

168

195

196

Delinquent Filings

110

132

125

112

Total Actions

755

807

868

754

Disgorgement and Penalties Ordered

$4.16 billion

$4.19 billion

$4.08 billion

$3.79 billion

© 2019 Proskauer Rose LLP.

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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
Michael R. Hackett, Litigation Attorney, Proskauer Law Firm
Associate

Michael R. Hackett is an associate in the Litigation Department and a member of the Asset Management Litigation practice. His practice focuses on disputes and regulation involving private funds, including private equity, venture capital, hedge, real estate and private credit funds, as well as other limited partnerships, where he regularly advises funds, fund sponsors, investment advisers and institutional and individual investors.

Mike’s experience representing private fund clients runs the gamut, from control contests within advisers, to disputes between limited partners and general partners, to representation of investment advisers in connection with regulatory examinations, investigations and enforcement matters.  Mike also routinely represents fund sponsors and their portfolio companies, including in significant post-closing disputes. 

In addition to his private funds practice, Mike represents public and private companies in a variety of complex commercial and securities litigation matters.

Mike has been named a “Rising Star” by Massachusetts Super Lawyers, and was identified as an “associate to watch” by Chambers USA in 2017 and 2018.

During law school, Mike served as an intern judicial clerk to the Honorable William G. Young of the United States District Court for the District of Massachusetts.

617-526-9723
Anthony M. Drenzek, Special regulatory Counsel, Proskauer Rose, Attorney, Finance Policy Lawyer
Special Regulatory Counsel

Tony is special regulatory counsel in the Corporate Department and a member of the Private Funds Group and the Private Equity & Hedge Fund Litigation team. His practice focuses on advising U.S. and offshore private fund managers on all aspects of federal, state and SRO organizational and operational compliance, with a specific emphasis on the Investment Advisers Act of 1940.

Tony assists U.S. and offshore private fund clients in registering with the SEC as investment advisers, or reporting as exempt reporting advisers, and complying with...

617.526.9655
Alexandra Bargoot, Proskauer Law Firm, Boston, Litigation and Finance Law Attorney
Associate

Alexandra Bargoot is an associate in the Litigation Department and a member of the Private Equity & Hedge Fund Litigation Group. Her practice includes a variety of complex commercial litigation matters, with a focus on private investments funds, involving both private disputes and regulatory issues.

Alexandra assists clients on matters involving SEC investigations, pay to play violations, private actions, sales of investments, investigations of aiding and abetting, arbitration award enforcement, among other areas of expertise.

617-526-9461