U.S. SEC Division of Enforcement Reports Increase in Actions and High Recoveries in 2023 Fiscal Year

On November 14, 2023, the Enforcement Division (Division) of the U.S. Securities and Exchange Commission (SEC or Commission) released its annual report, which detailed the agency’s enforcement efforts during its 2023 fiscal year (October 1, 2022 – September 30, 2023).

The Division reported that it brought a total of 501 standalone actions, an 8% increase over 2022. The total number of enforcement actions also increased 3% from the prior year at 784 total actions. Although still down from pre-Covid years, the numbers have steadily increased in recent years.

The Division also reported the second highest amount of monetary recoveries in SEC history following record-breaking numbers in 2022, totaling nearly $5 billion in civil penalties, disgorgement, and pre-judgment interest in 2023. Of that, civil penalties comprised $1.580 billion, a large portion of which included combined penalties totaling more than $400 million by 25 investment advisory firms, broker-dealers, and credit rating agencies to settle charges that they violated recordkeeping requirements of the federal securities laws. The amount collected in disgorgement and prejudgment interest in 2023 was $3.369 billion, an increase over the prior two years.

The Division also emphasized the benefits of cooperation, noting that it did not impose civil penalties, or agreed to substantially limit penalties, in a number of actions where companies self-policed, self-reported, cooperated meaningfully with the staff’s investigation, and/or undertook remedial measures.

In addition to monetary relief, the Division also reported that the SEC obtained orders barring 133 individuals from serving as officers and directors of public companies, the highest number of bars obtained in a decade.

Looking at the categories of enforcement actions shows that the Division has shifted some focus in 2023. Most significantly, the number of actions involving securities offerings increased by nearly 48% to 167 in 2023, reflecting in part the Division’s heavy focus on crypto asset securities. Actions against broker-dealers also increased slightly, as did issuer reporting/auditing and accounting actions, to 140 action and 107 actions, respectively. Additionally, Foreign Corrupt Practice Act (FCPA) actions increased to 11 total actions. On the other hand, actions against investment advisers and investment companies decreased by approximately 20% from 2022 (reflecting in part the waning of the mutual fund share class initiative), although such actions still represented the third-highest category of total actions brought in 2023. Insider trading actions decreased by approximately 26% in 2023, as did actions involving public finance abuse, which decreased 70%. 

Among the enforcement actions brought, the Division highlighted its “industry shaping initiatives” to proactively investigate recurring or widespread securities violations. The Division’s emphasis on technical matters, like the recordkeeping cases, and prominence given to those matters in the report is reminiscent of the SEC’s “broken windows” initiative last decade, which included enforcement of technical securities violations in addition to more significant and complex ones. In addition to investigations for recordkeeping violations, the Division reported investigations of noncompliance with the newly amended Investment Adviser Marketing Rule, failures by insiders and major shareholders to timely file required SEC forms regarding their holdings of company stock, and Regulation A failures. The Division also highlighted actions “addressing misconduct that undermine[] its ability to effectively regulate the securities industry,” such as an action against a broker-dealer for Regulation SHO violations around order marking. The Division also reported “forceful action” to protect whistleblowers, including a settled action against an investment adviser for alleged whistleblower impediments that resulted in a $10 million penalty, the largest on record for a standalone violation of the Dodd-Frank whistleblower protection rule.