Lucky for you, the Securities and Exchange Commission’s (SEC) fiscal year ends in September, because it just announced it filed 807 enforcement actions covering a “wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties” in 2015. Were you one of the unlucky ones?
Of the 807 enforcement actions the SEC filed, it reported a record number (507) were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.
The SEC leverages data to track misdeeds…
What’s new in this year’s SEC report is the number of “high-impact and first-of-their-kind actions.” Among the latter were the first action involving: a private equity adviser for misallocating broken deal expenses; an underwriter for pricing-related fraud in the primary market for municipal securities; a “Big Three” credit rating agency; violations arising from a dark pool’s disclosure of order types to its subscribers; an FCPA action against a financial institution; an admissions settlement with an auditing firm; and an SEC rule prohibiting the use of confidentiality agreements to impede whistleblower communication with the SEC.
SEC Chair Mary Jo White credits, “the Enforcement Division’s leveraging of data, quantitative analytics” with the year’s very strong results.
…And financial reporting missteps…
According to the Commission, financial reporting remained a key enforcement priority and this past fiscal year involved a number of significant financial fraud and issuer disclosure matters, including actions against companies and executives at:
- Computer Sciences Corporation and eight of its former executives, including its former CEO and CFO;
- ITT Educational Services, its CEO and CFO;
- Deutsche Bank AG; Miller Energy and its former CFO and current COO;
- MusclePharm Corp., its CEO, its two former CFOs, and the former chair of its audit committee;
- Assisted Living Concepts and its former CEO and CFO;
- Broadwind Energy and its former CEO and CFO;
- Bankrate and three of its former executives;
- two former top executives of KIT Digital; and
- Trinity Capital Corporation and five of its current or former executives.
…And holds gatekeepers accountable…
Not only did the SEC go after institutional misdeeds, it held attorneys, accountants and other gatekeepers accountable for failures to comply with professional standards. This includes:
- The first non-independence case against a major audit firm since 2009, where the SEC charged BDO USA, LLP with issuing false and misleading unqualified audit opinions about the financial statements of General Employment Enterprises, and five of the firm’s partners, including national office personnel, for their roles in the deficient audits;
- Sanctions against Deloitte & Touche LLP and eight auditing firms for various brokerage firms for violating independence rules;
- Charging MusclePharm Corp.’s former audit committee chair who substituted his wrong interpretation of SEC rules for those of an outside expert, resulting in an incorrect disclosure.
- Charging 14 accountants and 10 attorneys for their roles in aiding perpetrators of microcap fraud; and
- Holding Oppenheimer & Co. and current and former E*Trade subsidiaries culpable for failing in their gatekeeping function as broker-dealers by allowing billions of unregistered microcap stock shares to be sold into the market.
…And sanctions you too, if your controls are inadequate
As a warning to exchanges, traders and other market participants like you to operate fairly, the SEC also:
- Sanctioned Morgan Stanley & Co., Goldman, Sachs & Co., and Latour Trading LLC for violations of the market access rule, which requires firms to have adequate risk controls in place before providing customers with access to the market;
- Obtained the largest penalty to date against an alternative trading system, ITG Inc. and AlterNet Securities, Inc., to settle charges that they operated a secret trading desk and misused the confidential trading information of dark pool subscribers;
- Charged UBS Securities LLC with disclosure failures and other securities law violations related to the operation and marketing of its dark pool;
- Sanctioned Athena Capital Research, a New York City-based high frequency trading firm on its first case involving high frequency trading manipulation;
- Secured the largest penalty for an exchange resulting from an action charging two exchanges formerly owned by Direct Edge with failing to accurately describe their order types in SEC rule filings in the SEC’s first case principally focusing on stock exchange order types; and
- Charged two Merrill Lynch entities with using inaccurate data in executing short sale orders.
And there’s more! Other SEC firsts involved:
- Rooting out insider and abusive trading schemes through innovative use of data and analytics;
- Uncovering misconduct by investment advisers and investment companies;
- Fighting market manipulation and microcap fraud;
- Halting international and affinity-based investment frauds;
- Upholding disclosure standards in municipal securities;
- Cracking down on misconduct involving complex financial instruments;
- Combating foreign corrupt practices;
- Standing up for whistleblowers; and
- Demanding admissions in important cases enhancing public accountability.
So…how are you protecting yourself and your firm?
Beyond operating within the law, you’ve also got to make sure you’ve got the right compliance processes and procedures in place so that you can produce data and records when the SEC and FINRA demand it.
Which begs the questions: Will you be ready? Do you have the right processes, programs, or systems in place? And, if so, how do you access that data? How will you give the SEC and FINRA what they want when they want it?
You could outsource the burden of tracking and organizing your data and documents to an independent regulatory archival and compliance solutions specialist, like us to help keep your compliance processes and procedures running smoothly and compliantly? Ask about Patrina’s cost-effective and comprehensive regulatory archival and compliance solutions specifically designed for Broker/Dealers, RIAs, and FCMs.
Let’s talk: 212-233-1155.