In its 2019 Annual Report, the SEC Division of Enforcement highlighted efforts to protect retail investors and combat cyber threats.

In the Report, the Division listed several initiatives designed to protect retail investors, including:

  • launching the Share Class Selection Disclosure Initiative in February 2018, which resulted in the return of ill-gotten gains to affected investors; and

  • establishing the Retail Strategy Task Force to (i) create data-driven techniques to identify harmful retail practices in the securities market and (ii) coordinate efforts within and outside of the SEC concerning retail investor advocacy.

The Division also highlighted cyber-related developments, including:

  • the creation of a new Cyber Unit to defend against cyber-related threats;

  • investigations and recommendations on cases involving distributed ledger technology and digital assets; and

  • updating technology to aide in the investigation of unlawful trading and improving the ability to analyze large volumes of data.

The SEC emphasized that it pursued 862 enforcement actions and noted that there were more standalone enforcement actions brought in FY 2019 than in FY 2018.

Commentary

Kyle DeYoung

against investment

The Annual Report describes an impressive year for the Enforcement Division with a couple of trends that stand out.

First, as promised, the SEC was very active in bringing cases to protect retail investors in FY 19. This included a huge increase in cases against investment advisers and investment companies (191 total actions accounting for 36% of all actions, compared to 108 and 22% in FY 18) and an increase in issuer reporting and accounting cases (up to 92 from 79 in FY 18). Conversely, there were big drops in the number of cases against broker-dealers (down to 38 accounting for 7% of all actions, from 63 and 13% in FY 18) and insider trading cases (down to 30 from 61 in FY 18).

Second, the SEC continued to look for ways to use remedies - other than large financial penalties - to further its enforcement goals. Following in the footsteps of its FY 18 cases against Theranos (where it required the CEO to relinquish control and has prevented her from profiting from a sale of the company until the money is returned to investors) and Tesla (where it required the CEO to resign as Chairman and the company to add two new independent directors), the SEC highlighted several actions from FY 19 where it required parties to comply with detailed undertakings. Look for these trends to continue in FY 20.

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