The Securities and Exchange Commission’s enforcement numbers for last year weren’t made public until Friday morning but the co-director of enforcement, Stephanie Avakian, was already playing defense this week, telling an audience of current and former SEC lawyers in Washington D.C. she rejects the premise that her team’s efforts should be judged by statistics alone.
The SEC’s enforcement division annual report, published Friday morning, also led off with a defensive posture, saying “quantitative metrics—for example, the raw number of cases led or the total amounts of fines and penalties assessed during an arbitrary time period such as a single fiscal year—cannot adequately measure the effectiveness of an enforcement program. “ The report says the regulator brought 821 actions, 490 of which were “stand alone” actions.
Comparing only standalone actions to prior years, 2018 was a improvement from 2017’s 446 individual actions but still much lower than 2016 when 548 individual matters were filed and 2015 when 508 new cases were filed.
The individuals charged in 2018 included Elon Musk, the CEO of Tesla Inc.
, and founder and CEO Elizabeth Holmes of Theranos.
The SEC also charged U.S. Congressman Christopher Collins, whose alleged tip allowed his son and his son’s tippees including an accountant girlfriend to avoid losses by trading in advance of news of negative clinical trial results, and six more certified public accountants—including former staffers at the audit regulator the Public Company Accounting Oversight Board and former senior officials at KPMG LLP—arising from their alleged participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG.
The SEC obtained $3.945 billion in disgorgement and penalties in 2018, about 4% higher than last year when judgements fell to the lowest total since 2013. A significant amount of the money awarded in 2018 came from a single case, $1.8 billion in disgorgement and penalties for a massive corruption scheme perpetrated by certain former senior executives of Petrobras
—a Brazilian government-controlled oil and gas company—who conspired with its largest contractors and suppliers, resulting in accounting fraud.
On a panel for enforcement directors at the Securities Enforcement Forum in Washington D.C on Thursday Brad Bondi, a former counsel to two SEC commissioners and member of the Financial Crisis Inquiry Commission, asked Avakian if the expected lower enforcement metrics were a “function in a change in velocity or focus” or just a sign that the rush of cases from the financial crisis ten years ago were wrapping up.
Avakian responded that “we should be looking at the impact of the program.” She acknowledged that impact is hard to measure but said that she believed the 2018 results would “compare favorably to any period of time.”
The enforcement division’s core principles — focus on the Main Street investor, focus on individual accountability, keep pace with technological change, impose remedies that most effectively further enforcement goals, and constantly assess the allocation of resources — were first described in its inaugural annual report last year.
Avakian is focused, she said on Thursday, on whether her team is “getting the bad actors out of the industry” and if the SEC is getting money back to investors. In particular, Avakian said “are we bringing cases that send messages in all of our priority enforcement areas.”
I do think we should be looking at the impact of the program. I don’t think that is easy to measure.
However, the agenda has to be flexible as new issues pop up. Avakian said she was especially proud of how the agency “pivoted” to address the ICO and crypto-asset issue, which “came up out of nowhere in the last eighteen months.”
Later Thursday on a panel focused on cryptocurrency and initial coin offering, or ICO, enforcement trends, Melissa Hodgman, an associate director in the SEC’s division of enforcement, told the audience that every enforcement case the SEC brings in the ICO and crypto-asset arena is a “message” case.