The Securities and Exchange Commission (SEC) in fiscal year 2023 obtained orders for $4.9 billion in financial remedies, the second highest amount in SEC history, after the record-setting financial remedies ordered in FY 2022, the commission announced Nov. 14.
The financial remedies comprised roughly $3.4 billion in disgorgement and prejudgment interest and $1.6 billion in civil penalties. Both the disgorgement and civil penalties ordered were the second highest amounts on record. The SEC also obtained orders barring 133 individuals from serving as officers and directors of public companies, the highest number of officer and director bars obtained in a decade.
In addition, the SEC distributed $930 million to harmed investors in FY 2023, marking the second consecutive year with more than $900 million in distributions.
Included among the financial remedies were 25 advisory firms, broker-dealers, and credit rating agencies, including Wells Fargo, HSBC, and Scotia Capital, which agreed to pay combined civil penalties totaling more than $400 million to settle charges that they violated the recordkeeping requirements of the federal securities laws.
Overall, the SEC announced that it filed 784 total enforcement actions in FY 2023, a 3% increase over FY 2022, including 501 “stand-alone” enforcement actions—an 8% increase over the prior fiscal year. The SEC also filed 162 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders and 121 actions against issuers who were allegedly delinquent in making required filings with the SEC.
The stand-alone enforcement actions spanned the securities industry, from billion-dollar frauds to emerging investor threats involving crypto asset securities and cybersecurity, and charged violations by diverse market participants, from public companies and investment firms to gatekeepers and social media influencers.
“Investor protection and enhancing public trust in our markets requires that we work with a sense of urgency, using all the tools in our toolkit. As today’s results make clear, that’s precisely what the Enforcement Division did in fiscal year 2023,” Gurbir S. Grewal, Director of the Division of Enforcement, said in a statement. “Whether it was by leveraging risk-based initiatives, seeking robust remedies, rewarding cooperation, protecting whistleblowers, or returning nearly a billion dollars to harmed investors, the Enforcement Division stood up for the investing public.”
A deeper dive into the SEC’s 2023 enforcement actions reveals the following actions taken that might be of interest to industry stakeholders.
Marketing Rule
As a result of alleged noncompliance with the marketing rule, the commission charged nine investment advisers, finding that each of the charged firms advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures.
Each of the firms settled the charges, paying combined civil penalties of $850,000. In addition, FinTech investment adviser Titan Global Capital Management USA LLC agreed to pay more than $1 million combined in a civil penalty, disgorgement, and prejudgment interest to settle charges that it violated the marketing rule.
Crypto
The SEC brought a series of enforcement actions in FY 2023 addressing the “alleged rampant noncompliance” in the crypto asset intermediary space, including actions against Beaxy, Bittrex, Binance and Coinbase.
Cybersecurity
In FY 2023, the SEC charged broker-dealer Virtu for allegedly making materially false and misleading statements and omissions regarding information barriers to prevent the misuse of sensitive customer information. The litigation is pending.
The SEC also settled charges against software company Blackbaud Inc. for making misleading disclosures about a 2020 ransomware attack that impacted more than 13,000 customers. Blackbaud agreed to pay a $3 million civil penalty to settle the charges.
ESG-Related Cases
The SEC brought several enforcement actions addressing ESG issues in FY 2023.
Those included charges against a Deutsche Bank subsidiary for making materially misleading statements about its controls concerning ESG products. The firm apparently marketed itself as a leader in ESG that adhered to specific policies for integrating ESG considerations into its investments, but it allegedly failed to adopt and implement policies and procedures reasonably designed to ensure that its public statements about the ESG-integrated products were accurate, the SEC notes. The firm agreed to pay a $19 million civil penalty to settle the charges.
The SEC also charged Goldman Sachs Asset Management for policy and procedure failures involving two mutual funds and a separately managed account strategy marketed as ESG investments. To settle the charges, GSAM agreed to pay a $4 million penalty.
Investment Professionals
Actions taken against investment professionals in FY 2023 included charges against investment adviser AssetMark Inc. related to undisclosed conflicts of interest involving a cash-sweep program operated by its affiliated custodian and its receipt of millions of dollars in revenue-sharing payments from third-party custodians. According to the SEC, AssetMark agreed to pay a civil penalty of $9.5 million, and disgorgement and prejudgment interest of more than $8.5 million to settle the charges.
