On Monday the SEC announced its enforcement results for FY 2020, accompanied by a report from the Director of its Division of Enforcement. This report confirms what we have seen over the past year for private fund managers: although OCIE has been more active on adviser examinations, we’ve seen a bit less enforcement activity. Yet in spite of the headwinds posed by the global pandemic, the Commission brought 715 enforcement actions in FY 2020, representing only a 17% decrease from FY 2019. It also obtained record-breaking monetary remedies with total penalties and disgorgement reaching $4.68 billion, an 8% increase from 2019.

  • Investment advisor cases accounted for 87 standalone actions in the past year. The percentage of cases involving investment advisors or investment companies decreased, shrinking to 21% from 36% in 2019, largely due to the conclusion of the Share Class Selection Disclosure Initiative.
  • Insider trading cases increased slightly from 6% of the actions filed in 2019 (30 actions) to 8% of the 2020 actions (33 actions).
  • The impact of COVID-19 on the Commission was substantial — by mid-March the entire division had shifted to telework and began conducting all operations remotely. While this was the fewest Enforcement actions since 2013, when the Commission brought 686 actions, the relatively slight decrease in actions is notable, especially considering that the Commission brought 492 enforcement actions after the transition to telework.
  • Relatedly, the Commission received 23,650 TCRs (tips, complaints, and referrals) in 2020, a substantial increase over the 16,850 TCRs received in 2019. The increase seems largely driven by the pandemic, as the number of TCRs received between mid-March and the end of the fiscal year represented a 71% increase from the same time period in 2019. Notably, the Commission opened more inquiries and investigations than it had in 2019.

Enforcement continues to focus on retail investor protection. The Division established a Coronavirus Steering Committee to proactively identify and monitor areas of potential misconduct associated with COVID-19. By the end of the fiscal year the Division had opened more than 150 COVID related inquiries or investigations, many of which remain ongoing.

The Annual Report reiterated the Commission’s continued focus on insider trading and other illegal trading activities. In particular, the SEC highlighted the importance of “robust corporate controls and compliance policies around the use and safeguarding of material nonpublic information.” We expect Enforcement to continue to look for MNPI cases involving fund managers, particularly where investment professionals, as part of their employment, come into contact with non-public information.

Enforcement Actions Filed in Fiscal Years 2015 to 2020
  FY 2020 FY 2019 FY 2018 FY 2017 FY 2016 FY 2015
Standalone Enforcement Actions 405 526 490 446 548 508
Follow-On Admin. Proceedings 180 210 210 196 195 167
Delinquent Filings 130 126 121 112 125 132
Total Actions 715 862 821 754 868 807
Disgorgement and Penalties Ordered (in billions) $4.68 $4.35 $3.95 $3.79 $4.08 $4.19

Keep in mind that the presidential election results may lead to a different Commission composition with different priorities, particularly in the fund space.

To view Proskauer’s Private Equity SEC Enforcement Tracker, click here. We will continue to examine the report and provide further updates and analysis.

Photo of Joshua M. Newville Joshua M. Newville

Joshua M. Newville is a partner in the Litigation Department in New York and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives…

Joshua M. Newville is a partner in the Litigation Department in New York and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and criminal investigations. In addition, Josh advises registered investment advisers and private fund managers on regulatory compliance, SEC exams and related risks.

Photo of Samuel J. Waldon Samuel J. Waldon

Sam Waldon is a partner in the Litigation Department and a member of the Securities Litigation, White Collar Defense & Investigations and Asset Management Litigation Groups.

Sam’s practice focuses on securities litigation, enforcement and regulatory matters. He represents corporations and financial institutions, and …

Sam Waldon is a partner in the Litigation Department and a member of the Securities Litigation, White Collar Defense & Investigations and Asset Management Litigation Groups.

Sam’s practice focuses on securities litigation, enforcement and regulatory matters. He represents corporations and financial institutions, and their officers, directors and employees, in investigations, exams, internal investigations and litigation. Sam has in-depth experience in a broad range of Securities and Exchange Commission (SEC) enforcement matters, including financial disclosure, accounting, investment adviser, asset management, private equity, broker dealer, FCPA, cyber-related misconduct, insider trading and market abuse.

Before joining Proskauer, Sam served as Assistant Chief Counsel in the SEC’s Division of Enforcement for eight years. In that role, Sam helped develop and implement many of the Division’s policies and procedures, and advised the Division’s senior leadership, investigative staff and trial unit attorneys on a wide range of legal and policy issues. He regularly provided guidance on the terms of negotiated settlements and charging decisions in litigated matters. Sam also worked closely with staff in other Divisions and Offices throughout the SEC on enforcement related issues, including playing a key role in the drafting of the rules establishing the SEC’s whistleblower program.

Photo of Brian A. Hooven Brian A. Hooven

Brian Hooven is an associate in the Litigation Department. He has represented a diverse client base in all phases of litigation, including trial, in both state and federal courts.

Brian also maintains an active pro bono practice, representing individual clients in criminal, family…

Brian Hooven is an associate in the Litigation Department. He has represented a diverse client base in all phases of litigation, including trial, in both state and federal courts.

Brian also maintains an active pro bono practice, representing individual clients in criminal, family and immigration proceedings.

Prior to law school, Brian worked at the University of Michigan Center for Arrhythmia Research and co-authored Time- and frequency-domain analyses of atrial fibrillation activation rate: The optical mapping reference. (2011) Heart Rhythm.

Photo of Ariella Muller Ariella Muller

Ariella Muller earned her J.D. from Columbia Law School, where she was a notes editor for the Journal of Transnational Law. While at Columbia, Ariella worked at the Manhattan District Attorney’s Office, the Queens District Attorney’s Office and the U.S. Attorney’s Office…

Ariella Muller earned her J.D. from Columbia Law School, where she was a notes editor for the Journal of Transnational Law. While at Columbia, Ariella worked at the Manhattan District Attorney’s Office, the Queens District Attorney’s Office and the U.S. Attorney’s Office for the Eastern District.