The end of the year often sees us looking back at the last 12 months and reviewing our accomplishments, totaling our wins – or our losses – against what we set out to achieve at the start of the year. Financial regulators are no exception: The Securities and Exchange Commission (SEC) has released its annual enforcement results for fiscal year 2024, which paint an interesting picture of fines and focuses.
Ups and downs
The SEC’s results show that 2024 was a record-breaking year for the regulator in some instances, especially when it came to total fines imposed:
- The SEC filed 583 total enforcement actions through 2024, obtaining orders for $8.2 billion in financial remedies – the highest in its history
- This included $6.1 billion in disgorgement and prejudgement interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest recorded amount
- The regulator received 45,130 tips, complaints, and referrals – the most ever received in on year, as well as awarding $255 million in whistleblower awards
- The SEC also barred 124 individuals from serving as officers and directors of public companies, the second-highest number in a decade
While the total number of fines imposed reached record highs, interestingly, this was the result of a lower overall number of enforcement actions, with 2024 seeing:
- A 26% decline in total enforcement actions compared with 2023
- A 14% decrease in “stand alone” enforcement actions (down to 431)
- A total of 93 “follow on” actions seeking to bar or suspend individuals, a 43% decrease
- 59 actions against issuers “allegedly delinquent in making required filings,” representing a 51% decrease
Keeping pace
The release accompanying the enforcement totals highlighted that the SEC has been working to ensure that regulatory activity stays ahead of emerging technologies and associated challenges, while also focusing on persistent, well-known risk areas. Sam Waldon, acting deputy director of the division of enforcement, said:
“The varied enforcement actions recommended by the Division in fiscal year 2024 demonstrate the Division keeping pace with emerging threats presented by misstatements regarding artificial intelligence, fraudsters using social media to perpetuate relationship scams, and more, while maintaining its focus on evergreen investor risks such as material misstatements, deficient internal controls, and major gatekeeper failures.”
The enforcement results highlight areas including enforcements against violations of its Marketing Rule and emergence of risks like artificial intelligence (AI) and cryptocurrency. The first risk listed, however, is an all-too-familiar one – off-channel communications.
We have seen a regular drumbeat of multiple enforcements for recordkeeping and off-channel communications violations throughout 2024, with the SEC’s enforcement results confirming that recordkeeping cases were brought against more than 70 firms, totaling over $600 million in civil penalties. This included the Commissions’ first recordkeeping case against municipal advisors. These cases bring the total of the SEC’s ongoing off-channel communications and recordkeeping crackdown to over $2 billion in penalties levied against more than 100 firms since 2021.
The final word
Current SEC Chair Gary Gensler used a familiar metaphor in his summary of the enforcement results for 2024, a comparison he has used before:
“The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable. As demonstrated by this year’s results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike.”
Gensler recently announced that he will be stepping down from his position in early 2025, meaning these will be the last SEC enforcement results with him at the Commission’s helm. With the departure of previous enforcement division director Gurbir Grewal earlier in the year, it will be interesting to see how 2025 year-on-year results might differ in 12 months’ time.
A recent speech from Sanjay Wadhwa, acting director of the SEC’s division of enforcement, indicated that the regulator’s focus on off-channel communications is unlikely to drastically change anytime soon. He also highlighted the importance of firms cooperating with the regulator and taking a proactive approach to self-reporting incidences of noncompliance. His summary of the 2024 results continues this trend:
“Market participants across the spectrum – from public companies to major broker-dealers and advisory firms – stepped up efforts to self-report, remediate, and meaningfully cooperate with our investigations, answering our call to foster a culture of compliance.”
While the SEC’s work, and the fines levied by the division of enforcement, act both to deter noncompliance and to change behaviors, Wadhwa’s statement furthers this by highlighting that the overall figures do not account for the investigations that result in changed, more compliant behaviors without reaching an enforcement outcome:
“What our numbers do not reflect, however, are countless investigations that may not have resulted in an enforcement action for evidentiary or other reasons, or where we declined to pursue an enforcement action, but that shined a spotlight on potentially problematic conduct and caused responsible market participants to cease engaging in it.”
While the SEC has pointed to a continued focus on familiar enforcement areas like off-channel communications and recordkeeping, as well as to an awareness of expanding risks like AI, cryptocurrency, and cybersecurity, with a considerable amount of change at the top of the commission, the next 12 months could see a substantially different regulatory environment emerge.
Whether as a result of these changes, or – in an ideal world – the result of changed and more compliant behaviors from firms and individuals, 2025’s enforcement results could look very different.
