Did you think the regulators were going to go away under the current administration? Think again! Compliance still matters, and fines and sanctions are being issued…albeit quietly.

Muted sanctions remove spotlight from Wall Street misconduct

In a report last week by Bloomberg News, Jay Clayton, the Security and Exchange Commission’s (SEC) regulator-in-chief, the agency is opting not to hype hedge-fund and big-bank cases.

Are regulators still pursuing wrongdoers?

Indeed, they are. But, at least one top financial regulator isn’t embarrassing Wall Street as much as it used to. For example, the SEC has been investigating TPG Capital LP, a private equity giant co-founded by billionaire David Bonderman. The SEC was concerned that TPG and its competitors were pocketing many, many millions of dollars in fees they hid from investors. Oops!

In 2015, when the SEC started it slapped the hands of firms over oddly assigned expenses, it shouted its enforcement actions from the rooftops, heavily publicizing its victories over miscreants. Among them, Blackstone Group LP, KKR & Co., and Apollo Global Management LLC paid at least $28 million, and each was publicized via press releases and stern announcements from the Commission.

But TPG’s $13 million settlement was not promoted. Wrapped up after the new administration took office, the SEC quietly disclosed the sanction in a dense legal document it posted on its website after U.S. stock markets closed and over the December holiday break.

Why is the SEC so quiet?

No one is really talking about it. They just keep whispering. Among the 2017 enforcement actions:

• Bank of America Corp.’s Merrill Lynch unit paid $13 million for failing to adequately monitor millions of customer accounts for money laundering and other suspicious activity;
• Hedge fund Manager Nehal Chopra’s hand slap for misleading her investors by telling them her trades were based on researching stocks when a lot of her ideas really came from her husband.
• William Tirrell, a former Merrill executive, was also punished for playing a key role in the firm’s misuse of billions of dollars in customer funds. In 2016, the SEC did issue a press release announcing a complaint against Tirrell and that Merrill would pay $415 million over the firm’s alleged misconduct. But, five months ago, the SEC reached a deal with Tirrell (which it did not announce) and that his penalty for wrongdoing would be $0.

Getting the job done…without fireworks

Mandate from the president is to drop the previous contentious tone that often flared up between Washington and Wall Street following the 2008 financial crisis. Clayton, the SEC chairman, has said his priority is protecting “Mr. and Ms. 401K.” In the more than nine months he’s led the agency, it hasn’t hesitated to highlight enforcement actions involving small-time scammers, Ponzi schemes, penny-stock frauds and, increasingly, wrongdoing tied to cryptocurrencies. But not necessarily the bigger hits. Ex-SEC officials say they’ve noticed a shift.

Does less shouting from the SEC mean less enforcement activity?

Maybe. Under Clayton, the SEC has seen fewer enforcement actions and penalties. Cases fell 13 percent to 754 for the fiscal year that ended in September 2017, fines against companies and individuals slipped 34 percent to $832 million.

Concerns that the SEC is going soft on big financial firms were raised at a Feb. 6 hearing when Senator Sherrod Brown questioned Clayton about the agency’s willingness to hold Wall Street accountable. Brown, an Ohio Democrat, said things appear to be going “the wrong way.”

Clayton rejected the notion that the SEC has pulled punches, telling Brown the regulator is “vigorously” pursuing violations of securities laws. The SEC chairman added that it’s too early to draw conclusions about the agency’s approach to enforcement because cases take about two years to develop.

The SEC is still hyping some investigations into Wall Street. This week, the agency issued a press release announcing that Deutsche Bank AG had agreed to pay about $4.5 million to settle allegations that it inflated its earnings after misleading clients about how much bonds backed by commercial mortgages were worth.

Does a quieter SEC mean compliance can relax?

Maybe. Maybe not. The SEC is still issuing significant fines, penalties, sanctions, albeit with a slight shift to smaller targets. Is that you, and your organization? Is it worth the exposure, fines, or worse? That’s a question only you can answer. But that’s also where Patrina can help. We’ve built a business on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution, and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.