Under the leadership of Chair Gary Gensler, the Securities and Exchange Commission (SEC) increased its enforcement efforts in the previous fiscal year, focusing on prosecuting high-profile cases and imposing harsh penalties for misconduct.
According to the SEC’s annual enforcement report, which was made public Tuesday, the agency filed 760 enforcement actions in the fiscal year ending Sept. 30, up 9% from the previous year.
The SEC imposed monetary penalties totaling $6.44 billion, the highest amount on record and 67% more than the previous year. The total includes a record $4.19 billion in civil penalties and $2.25 billion in ill-gotten gains disgorgement, which is about 6% less than the previous year.
“The increased penalty-to-disgorgement ratio…shows that the risk-reward calculation is no longer what it was just a few years ago.”
In the previous fiscal year, the SEC imposed more penalties than disgorgements, demonstrating that “the potential consequences of violating the law are significantly greater than the potential rewards,” Gurbir Grewal, the SEC’s director of enforcement, said at a conference Tuesday. He went on to say that the SEC ordered more than twice as much in disgorgements as it did in penalties in the five fiscal years preceding the most recent one.
“While disgorgement was slightly lower than the previous year,” he explained, “this is the first time that the amount ordered to be paid in penalties has been double the amount ordered to be paid in disgorgement.” “However, the increased penalty-to-disgorgement ratio shows that the risk-reward calculation is not what it was even a few years ago.”
The SEC’s whistleblower award program also received a record number of tips reporting potential wrongdoing for fiscal year 2022, surpassing the previous year’s record of 12,210 tips.
In fiscal 2022, the cash-for-tips program distributed approximately $229 million in 103 awards. According to the SEC, this made it the second-highest year in terms of both the number of awards and the dollar amounts of awards issued.
In August, the SEC whistleblower program reversed a Trump-era change that would have limited the amount of awards it could provide. A new study this year found that nearly a quarter of the SEC’s whistleblower awards went to people represented by law firms with attorneys who previously had close connections to the regulator. The SEC stated that it does not give special consideration or treatment to those who have previously worked for the regulator.
The SEC stated that it was focusing on actions that would deter future violations while encouraging major institutions to be accountable. Settlements between the SEC and many of Wall Street’s biggest banks in the last year included allegations that their employees’ use of personal messaging apps like WhatsApp violated regulatory requirements. Bank of America Corp., Barclays PLC, Citigroup Inc., Deutsche Bank AG, and Goldman Sachs Group Inc. are among the banks that have agreed to pay the SEC $125 million each.
Better Markets Inc., a nonprofit financial markets watchdog group based in Washington, welcomed the news of the record fines, but said the regulator must do more to hold individuals accountable for their actions.
“That need is especially strong here given the widespread violations involving senior employees,” said Stephen Hall, Better Markets’ legal director and securities specialist, in a statement. “The public deserves to know why Wall Street executives and managers continue to get a free pass.”