Mark Van Scyoc
Research finds sharp decline in enforcement outcomes, but activity ramped up in September
SEC enforcement actions against public companies fell by more than a third this year in the face of Covid-19 pandemic disruption, according to new research.
A joint report by NYU Pollack Center for Law & Business and Cornerstone Research reveals there were 61 new actions against public companies and subsidiaries in the full year to 30 September compared to 95 in 2019, which was a record.
It is the lowest total since 2014, reflecting the disruption caused by the coronavirus pandemic. Actions picked up in the second half of the year, however, with nearly one-third of all actions filed in September.
Irregularities with issuer reporting and disclosure were the dominant allegation, according to the research, accounting for 30 actions, the most filed in any financial year to date.
These included the first cases brought under the SEC’s Earnings Per Share (EPS) Initiative, which deploys data analytics to seek out accounting and disclosure violations.
On 28 September, carpet manufacturer Interface and Pennsylvania bank Fulton Financial agreed to pay civil fines of $5m and $1.5m respectively for ‘violations that resulted in improper’ EPS reporting.
While the number of actions was down this year, the total of $1.6bn in monetary settlements edged above last year’s figure, although two-thirds of this amount came from two actions that each settled for more than $500m.
The largest fine was a settled action with Ericsson in December last year when it agreed to pay more than $539m in disgorgement and prejudgment interest after being charged with engaging “in a large-scale bribery scheme” in violation of the Foreign Corrupt Practices Act.
And as part of a combined $3bn settlement with the Department of Justice in February, Wells Fargo was ordered to pay the SEC a $500m civil penalty for misleading investors about the success of its core business strategy when it was “opening unauthorised or fraudulent accounts for unknowing customers and selling unnecessary products that went unused”.
Writing in the SEC Division of Enforcement’s annual report, which was published on 2 November, director Stephanie Avakian described Covid-19 as “the real story of 2020”.
‘By mid-March, the entire Division had transitioned to mandatory telework and essentially all of our operations were conducted remotely,’ she wrote. ‘Despite the shift in working conditions – and the still-ongoing efforts to adapt to those conditions – we quickly dedicated substantial resources to address the emerging threats presented by Covid-19 and the ensuing dynamic market conditions.’
She said from mid-March through to the end of the fiscal year, around 16,000 tips, complaints and referrals had been triaged – up by 71% over the same time period last year – while the division had opened more than 150 Covid-related inquiries and investigations.
Recent years have seen law firms ramping up their investigations capabilities. This week, Slaughter and May announced a rare partner hire with the recruitment of senior in-house banking lawyer Gayathri Kamalanathan to its investigations team.
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