A Lens into SEC Enforcement
Officials say the agency's success should not be measured solely by the number of cases or fines, but the quality and impact of enforcement actions.
For entities regulated by the Securities and Exchange Commission, understanding enforcement priorities provides transparency for how enforcement decisions will be made. As a result, it is critical to pay attention not just to enforcement actions, but to how SEC leadership characterizes the agency’s enforcement efforts.
Recently, the SEC’s Division of Enforcement released its second annual report highlighting several significant actions and initiatives that took place in fiscal year 2018. According to the report, the SEC’s enforcement work is guided by focusing on the Main Street investor and individual accountability, keeping pace with technological change, offering solutions that improve enforcement goals, and assessing resource allocation.
The report demonstrates how these principles led to the SEC’s primary focus on protecting Main Street investors from bad actors and fraudulent conduct in 2018. The report also imparts another important message from the co-directors of the SEC’s enforcement division: Success should not be solely measured by the sheer number of cases brought or the number of fines imposed. Instead, they believe assessing the quality and impact of the SEC’s enforcement actions is a better measuring stick of success. “Are we deterring future harm by bringing meaningful cases that send clear and important messages to market participants?” the report asked.
“IT IS CRITICAL TO PAY ATTENTION NOT JUST TO ENFORCEMENT ACTIONS, BUT TO HOW SEC LEADERSHIP CHARACTERIZES THE AGENCY’S ENFORCEMENT EFFORTS.”
Around the same time the report was published, SEC Commissioner Hester Peirce gave a speech that echoed the same theme of quality over quantity when it comes to SEC enforcement. She stated that the SEC must concentrate on serious violations of securities laws rather than spending vital resources pursuing perpetrators of minor infractions. Peirce argued that the SEC should resist the temptation to focus on quantitative metrics alone and instead concentrate its resources in areas in where it can make a real difference—namely on rigorously protecting investors and maintaining the integrity of the capital markets.
While the message coming from the SEC should help quell fears of entities who employ robust compliance programs, it nevertheless remains critical to maintain such programs to avoid being the subject of a future SEC enforcement action.
This story originally appeared in the March/April print edition of Middle Market Growth magazine. Read the full issue in the archive.
Maria Wolvin is ACG Global’s vice president and senior counsel, public policy.