The Securities and Exchange Commission (SEC) last week announced that it had filed 583 total enforcement actions in fiscal year 2024, while obtaining financial remedies worth $8.2 billion—the highest amount in SEC history.
Despite the high number, the SEC says its enforcement activity is on a 26% decline compared to 2023. Of those cases, the agency filed 431 “standalone” actions, which are 14% less than in the prior year; 93 “follow on” administrative proceedings “seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders,” which are 43% less than the previous year; and 59 actions against issuers who were allegedly “delinquent in making required filings with the SEC,” which represented a decrease of 51%.
The SEC says its $8.2 billion in financial remedies represent $6.1 billion in disgorgement and prejudgment interest and $2.1 billion in civil penalties. Approximately 56% of the $8.2 billion is tied to monetary judgments from Terraform Labs and Do Kwon, who in June were ordered to pay $4.5 billion to the SEC after a jury verdict found them guilty of orchestrating a fraud scheme involving crypto asset securities.
“The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable,” said SEC Chair Gary Gensler, in a statement. “As demonstrated by this year’s results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike.”
Addressing noncompliance
In its announcement, the SEC’s Enforcement Division also reviewed initiatives that it says had addressed issues of “widespread noncompliance,” including, among others:
Off-Channel Communications: In fiscal year 2024, the Commission brought recordkeeping cases resulting in more than $600 million in civil penalties against more than 70 firms, including the Commission’s first cases charging recordkeeping violations against municipal advisors. Since December 2021, the initiative has resulted in charges against more than 100 firms and more than $2 billion in penalties.
Marketing Rule: The Division’s ongoing initiative investigating non-compliance with the Marketing Rule resulted in settled charges against more than a dozen investment advisers. According to the SEC, the firms were charged for advertising hypothetical performance to the general public without adopting and implementing policies and procedures reasonably designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of the advertisement’s intended audience; using untrue or unsubstantiated statements of material fact and/or testimonials, endorsements, or third-party ratings that lacked required disclosures; and advertising misleading performance that was not fair and balanced.
Financial Remedies: In 2024, the Division’s investigations led to orders imposing financial remedies in litigated and settled matters. The Commission also filed settled charges against Morgan Stanley for an alleged multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as “block trades.” As a result, the firm agreed to pay approximately $166 million in disgorgement and prejudgment interest and an $83 million civil penalty to resolve the SEC’s charges.
Emerging technologies and risk
According to the SEC, 2024 saw heightened investor risk from emerging technologies and cybersecurity incidents and from market participants using social media to exploit elevated investor interest in emerging investment products and strategies. As a result, the SEC says it investigated noncompliance and false or misleading disclosures involved artificial intelligence (AI), social media, cybersecurity, crypto, and more. Some examples include:
Artificial Intelligence
- The SEC charged QZ Asset Management for allegedly falsely claiming that it would use its proprietary AI-based technology to help generate extraordinary weekly returns while promising “100%” protection for client funds; and
- The SEC settled charges against investment advisers Delphia and Global Predictions with making false and misleading statements about their purported use of AI in their investment process.
Cybersecurity
- The SEC settled charges against The Intercontinental Exchange, Inc. and nine wholly owned subsidiaries, including the New York Stock Exchange, for failing to timely inform the SEC of a cyber intrusion as required by Regulation Systems Compliance and Integrity;
- The SEC settled charges against transfer agent Equiniti Trust Company LLC, formerly known as American Stock Transfer & Trust Company LLC, for failures to ensure that client securities and funds were protected against theft or misuse, which led to losses of millions of dollars in client funds; and
- The SEC settled charges against R.R. Donnelley & Sons for disclosure and internal control failures relating to cybersecurity incidents.
Crypto
- The SEC settled charges against Silvergate Capital for false and misleading disclosures to investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of crypto customers, including FTX, by its wholly owned subsidiary, Silvergate Bank; and
- The SEC settled charges against Barnbridge DAO, a purportedly decentralized autonomous organization, for failing to register its offer and sale of structured crypto assets offered and sold as securities.
More details on the SEC’s actions for 2024 can be found here.
SEE ALSO:
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SEC Chair Gary Gensler to Step Down in 2025
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
