/>iFollowing a decline in SEC enforcement activity during the early phases of COVID-19, activity ramped up during the second half of FY 2020. The SEC filed nearly one-third of all FY 2020 public company and subsidiary actions in September. Issuer Reporting and Disclosure allegations reemerged as the dominant allegation faced by public company and subsidiary defendants, accounting for nearly half of actions filed.
Enforcement against public companies and subsidiaries slowed during the early phases of the COVID‑19 pandemic in the spring. However, after three consecutive months of three or fewer actions per month, enforcement activity began to increase in June (five actions). Similar to recent years, FY 2020 ended with a flurry of activity in which the SEC filed 18 of the 61 total actions during the last two weeks.
The SEC established a Coronavirus Steering Committee. One of the committee’s tasks is to “proactively identify and monitor areas of potential misconduct associated with COVID-19.” The SEC opened more than 150 COVID-related inquiries or investigations between mid-March 2020 and September 2020.[i]
While the SEC filed six enforcement actions related to COVID-19, these actions are not in SEED since they involved only microcap companies and individuals.[ii]
Issuer Reporting and Disclosure allegations reemerged as the most common allegation type in actions filed against public companies and subsidiaries in FY 2020 with the most actions filed in any fiscal year in SEED.
Cooperation by defendants declined from a FY 2019 record high of 77 percent, bolstered by the Share Class Selection Disclosure Initiative (Share Class Initiative), to 62 percent in FY 2020. The first half of FY 2020, which coincided with the slowdown in new filings, only had cooperation noted in 45 percent of actions against public companies and subsidiaries.
Administrative proceedings accounted for 75 percent of actions against public companies and subsidiaries filed in the first half of FY 2020, the lowest percentage in a half year since the first half of FY 2014. Administrative proceedings increased in the second half of FY 2020 to account for 95 percent of actions, resulting in 89 percent of actions overall in FY 2020.
Figure 1: Key Trends in Public Company and Subsidiary Actions FY 2010–FY 2020
|
|
FY 2010–FY 2019 Average |
1H FY 2020 |
2H FY 2020 |
FY 2020 Total |
|
New Actions |
64 |
20 |
41 |
61 |
|
Issuer Reporting and Disclosure Allegations |
36% |
60% |
44% |
49% |
|
Investment Adviser/Investment Company Allegations |
15% |
15% |
27% |
23% |
|
Actions Filed as Administrative Proceedings |
70% |
75% |
95% |
89% |
|
Defendants with Settlements Noting Cooperation |
54% |
45% |
70% |
62% |
|
Defendants with Monetary Settlements Imposed |
86% |
86% |
95% |
92% |
|
Average Monetary Settlements Imposed by the SEC |
$28 million |
$59 million |
$13 million |
$28 million |
|
Median Monetary Settlements Imposed by the SEC |
$4 million |
$2 million |
$5 million |
$4 million |
|
Disgorgement and Prejudgment Interest Imposed |
$285 million |
$540 million |
$25 million |
$565 million |
Read the report, SEC Enforcement Activity: Public Companies and Subsidiaries—Fiscal Year 2020 Update.
Read Executive Summary: SEC Enforcement Activity: Public Companies and Subsidiaries
[i] See “Division of Enforcement Annual Report 2020,” U.S. Securities and Exchange Commission, November 2, 2020, pp. 11–12, https://www.sec.gov/files/enforcement-annual-report-2020.pdf.
[ii] No public companies or subsidiaries, as defined in SEED, have yet been the target of a COVID-19-related action. See “Division of Enforcement Annual Report 2020,” U.S. Securities and Exchange Commission, November 2, 2020, pp. 25–26, https://www.sec.gov/files/enforcement-annual-report-2020.pdf.
