I. Introduction

Fiscal year 2014 proved to be another eventful and record-breaking year for the Division of Enforcement (Enforcement Division) of the United States Securities and Exchange Commission (SEC or the Commission). Indeed, the Commission recently described the fiscal year that ended in September (i.e., FY2014) as a "very strong year" for enforcement, and by certain measures it certainly was.1 This description of the SEC's performance and approach, however, is not without controversy as various aspects of the SEC's enforcement approach have been criticized in some quarters, including by certain of the SEC's own commissioners.

In FY2014, as illustrated, the SEC filed 755 enforcement actions, an all-time record. This means that the SEC filed 69 more enforcement actions in FY2014 than in FY2013 (when it filed 686 actions) and 21 more actions in FY2014 than in FY2012 (when it filed 734 actions). The increase reflects the continued implementation of SEC Chair Mary Jo White's controversial "Broken Windows" enforcement philosophy.

The breakdown of cases among the Enforcement Division's enumerated subject matter areas remained relatively stable in FY2014. Five categories of SEC actions showed an increase in year-over-year filings. Cases related to issuer reporting and disclosure increased significantly in FY2014, up 45% when compared to FY2013. Cases related to market manipulation and broker-dealers also increased 26% and 37%, respectively. Insider trading cases increased by 18%, while FCPA cases increased from five to seven in total, a 40% increase. Meanwhile, some categories of cases decreased, with the number of enforcement actions related to delinquent filings and securities offerings experiencing the steepest declines at 19% and 9%, respectively. Cases involving investment advisors also declined by 7%, dropping from 140 to 130 in total.

Among the 755 enforcement actions filed in FY2014 were numerous first-ever cases. For example, in February, the SEC filed its first enforcement action against a private equity firm regarding allocation of fees and expenses.2 In June, the SEC brought its first-ever enforcement action under the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) against a hedge fund that allegedly retaliated against a whistleblower.3 Additionally, in September, the SEC brought its first enforcement action against a broker-dealer for failing to protect a client's material non-public information.4

Moreover, in FY2014, civil penalties and disgorgement were at a record high. The SEC obtained $4.16 billion in disgorgement and civil penalties, which was up from $3.4 and $3.1 billion in disgorgement and penalties during FY2013 and FY2012, respectively. According to Chair White, "[t]he innovative use of technology – enhanced use of data and quantitative analysis – was instrumental in detecting misconduct and contributed to the Enforcement Division's success in bringing quality actions that resulted in stiff monetary sanctions."5

There were, however, some trends in 2014, including the SEC's increasing use of administrative proceedings, the continued demand for admissions in selected cases and the SEC's approach to insider trading, that has been described as controversial.

In this publication, we discuss certain of the trends and highlights of the SEC Enforcement Division's record in 2014, as well as the policy and priority shifts these cases represent.

Footnotes

1 SEC Press Release, SEC's FY 2014 Enforcement Actions Span Securities Industry and Include First-Ever Cases, Rel. No. 2014-230 (Oct. 16, 2014).

2 SEC Press Release, SEC Announces Charges Against Arizona-Based Private Equity Fund Manager in Expense Misallocation Scheme, Rel. No. 2014-41 (Feb. 25, 2014).

3 In the Matter of Paradigm Capital Management, Inc., Admin. Proc. File No. 3-15930 (June 16, 2014) (order instituting cease-and-desist proceedings).

4 SEC Press Release, Wells Fargo Advisors Admits Failing to Maintain Controls and Producing Altered Document, Agrees to Pay $5 Million Penalty, Rel. No. 2014-207 (Sept. 22, 2014).

5 SEC Press Release, SEC's FY 2014 Enforcement Actions Span Securities Industry and Include First-Ever Cases, Rel. No. 2014-230 (Oct. 16, 2014).

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