The U.S. Securities and Exchange Commission (SEC) recently released its enforcement report for fiscal 2024, detailing a year of record-breaking financial remedies amidst a significant decline in the total number of enforcement actions. While the total actions dropped by 26% compared to the previous fiscal year, the SEC obtained an unprecedented $8.2 billion in financial remedies—a testament to the agency's focused efforts in high-stakes cases.
Record Financial Remedies
The SEC's $8.2 billion in financial remedies for fiscal 2024 is the largest in the agency's history, comprising $6.1 billion in disgorgement and prejudgment interest and $2.1 billion in civil penalties. Notably, over half of this amount originated from the SEC's successful securities fraud case against Terraform Labs PTE Ltd. and its founder Do Kwon. A jury held the company and its executive liable for orchestrating a multi-year fraud involving cryptocurrency asset securities. This single case alone highlights the SEC's commitment to pursuing significant enforcement actions against major wrongdoers.
Decline in Total Enforcement Actions
The SEC initiated 583 enforcement actions in fiscal 2024, marking a notable 26% decrease compared to the previous year. Despite the reduction in quantity, the agency emphasized the quality and impact of its actions, underscoring its dedication to maintaining the integrity of U.S. capital markets. SEC Chair Gary Gensler reinforced this point, stating that the Division of Enforcement's efforts are aimed at holding wrongdoers accountable to protect investors and issuers alike.
Off-Channel Communications
The SEC continued its focus on enforcing recordkeeping requirements for broker-dealers, investment advisers, and credit ratings agencies. This initiative addresses the use of off-channel communications and ensures compliance with client communication tracking requirements.
In fiscal 2024, the SEC imposed over $600 million in civil penalties against more than 70 firms. Since launching this initiative in December 2021, the regulator has charged over 100 firms, resulting in penalties exceeding $2 billion. These actions demonstrate the SEC's ongoing commitment to upholding transparency and accountability in financial communications.
Marketing Rule Violations
The SEC's enforcement of its updated marketing rule, effective since late 2022, continued in fiscal 2024. Designed to prevent misleading advertisements by investment advisers, the rule targets practices such as advertising hypothetical performance without ensuring relevance to the intended audience, using unsubstantiated statements, and presenting biased performance metrics.
The SEC reached settlements with more than a dozen firms for violations of the rule, emphasizing the importance of accurate and balanced advertising in the investment industry. However, the total monetary amount from these settlements was not disclosed.
Emerging Technologies
The SEC's report highlighted heightened risks to investors from emerging technologies, such as artificial intelligence, cryptocurrency, and social media. The regulator pursued actions to address noncompliance and false or misleading disclosures in these areas:
- Artificial Intelligence: The SEC charged QZ Asset Management for falsely claiming that its proprietary AI technology would generate consistent returns. It also settled cases with Delphia and Global Predictions for misleading claims about their use of AI in investment processes.
- Cybersecurity: The SEC took enforcement actions against entities such as the New York Stock Exchange and Equiniti Trust Co. LLC for failing to report cyber intrusions or protect client assets adequately.
These cases illustrate the SEC's proactive stance in adapting to technological advancements and ensuring market participants maintain transparency and integrity.
Investment Professional Misconduct
The SEC brought numerous actions against investment professionals for fraud and other securities law violations. Highlights include:
- MassAve Global Inc.: The SEC charged the firm for making false and misleading statements about its fund's holdings and exposures.
- Aon Investments: The SEC settled charges with Aon for misleading the Pennsylvania Public School Employees' Retirement System about discrepancies in its investment return calculations.
These cases underline the SEC's dedication to protecting investors from misconduct in the advisory and asset management sectors.
Looking Ahead
The SEC's fiscal 2024 report reflects a year of strategic enforcement, with record-breaking financial remedies that underscore the agency's commitment to market integrity. As Chair Gary Gensler prepares to step down on January 20, 2025, his tenure will be remembered for prioritizing impactful enforcement actions that address evolving risks in the financial markets.
The SEC's focus on recordkeeping, advertising compliance, emerging technologies, and investment professional conduct signals key areas for market participants to watch in the coming years. Firms should prioritize regulatory compliance, particularly in light of heightened scrutiny on cybersecurity and technology-related disclosures.
Conclusion
For advisers, brokers, and other market participants, the SEC's fiscal 2024 report serves as a powerful reminder of the importance of compliance and transparency. As enforcement trends evolve, staying informed and proactive about regulatory obligations is essential to avoiding costly penalties and maintaining investor trust.
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