SEC Enforcement Highlights FY 2024: Record Financial Remedies amid Fewer Actions

On November 22, 2024, the U.S. Securities and Exchange Commission (SEC) announced its enforcement results for fiscal year 2024, reflecting a year of impactful actions despite a reduction in overall cases. The SEC set a historic precedent by securing $8.2 billion in financial remedies, the highest in its history, even as the total number of enforcement actions decreased compared to the prior year. These results underscore the SEC's focused efforts to ensure compliance and protect investors, particularly in areas of heightened risk and regulatory concern.

Key Highlights

• Total Enforcement Actions: The SEC filed 583 enforcement actions, marking a 26% decline from fiscal year 2023. This total includes 431 stand-alone actions (a 14% decrease), 93 follow-on administrative proceedings (down 43%), and 59 actions against delinquent filers (a 51% reduction).
• Financial Remedies: The SEC secured $8.2 billion in financial remedies, the highest in its history. This amount comprises $6.1 billion in disgorgement and prejudgment interest and $2.1 billion in civil penalties. Notably, over half of these remedies stem from a single judgment in the Terraform Labs and Do Kwon case, which resulted in more than $4.5 billion in penalties.
• Investor Compensation: The SEC distributed $345 million to harmed investors during the fiscal year, bringing the total returned to investors to over $2.7 billion since the start of fiscal year 2021.

Major Enforcement Initiatives

The SEC's enforcement strategy in 2024 focused on targeted initiatives aimed at addressing emerging risks and ensuring compliance across critical areas:

• Off-Channel Communications: The SEC intensified its focus on compliance with federal recordkeeping requirements, emphasizing their importance for investor protection and market stability. In fiscal year 2024, over $600 million in penalties were imposed on more than 70 firms, including the first cases against municipal advisors for recordkeeping violations. Since December 2021, this initiative has led to charges against over 100 firms and more than $2 billion in penalties.
• Marketing Rule: The SEC brought enforcement actions against investment advisers for non-compliance with the Marketing Rule. Violations included advertising hypothetical performance without proper policies, making untrue or unsubstantiated claims, and using misleading testimonials and performance data. These actions underscored the necessity of fair and balanced advertising practices tailored to an audience's financial circumstances.
• Whistleblower Protection Cases: The SEC pursued violations of the Dodd-Frank whistleblower protection rule, which prohibits actions that deter potential whistleblowers from contacting the Commission. Among the enforcement actions was an $18 million penalty against J.P. Morgan, marking the largest standalone penalty under this rule.
• Disclosures of Holdings and Transactions by Insiders and Investment Managers: Enforcement actions targeted failures to comply with disclosure requirements for securities holdings and transactions. Over two dozen individuals and entities, including 11 institutional investment managers, faced charges for lapses that compromised transparency critical for informed investment decisions.
• Robust Financial Remedies: Fiscal year 2024 saw significant financial penalties, highlighted by a $4.5 billion judgment against Terraform Labs and its founder, Do Kwon, for fraud. Additional settlements included Morgan Stanley for block trade-related misconduct, FirstEnergy for political corruption, SAP for bribery in multiple countries, and Macquarie for overvaluing illiquid assets.
• Major Fraud: The SEC took action against large-scale fraud schemes, including crypto pyramid operations and misleading claims by private companies. Notable cases involved HyperFund and NovaTech Ltd., which raised billions from investors through fraudulent practices. Additional charges were brought against individuals and entities for deceptive pre-IPO schemes and misrepresentations about company performance.
• Emerging Technologies and Emerging Risks: The SEC addressed risks arising from artificial intelligence, social media, and crypto markets. Cases included charges against QZ Asset Management for false claims about AI-driven investment strategies and regulatory actions against crypto entities such as BarnBridge DAO for offering unregistered securities. Cybersecurity-related enforcement addressed failures to safeguard data and disclose breaches, as seen with the New York Stock Exchange and other entities.
• Individual Accountability: Enforcement actions targeted individual executives and professionals for securities law violations. Cases included penalties and industry bans for former executives at companies such as Cassava Sciences and Silvergate Capital. The SEC emphasized that holding individuals accountable strengthens market trust and deters misconduct.
• Gatekeepers: The SEC focused on failures by auditors and other gatekeepers. Significant cases included BF Borgers for widespread auditor misconduct affecting over 1,500 SEC filings and other firms for compromising their independence. These actions reinforced the vital role of gatekeepers in maintaining market integrity.
• Public Company Misstatements: The SEC investigated misleading statements by public companies, leading to enforcement actions against firms such as Cassava Sciences, Ideanomics, and Kubient. These cases emphasized the importance of accurate and reliable disclosures for investor decision-making.
• Market Abuse/Safeguarding Material Nonpublic Information: The SEC pursued cases involving insider trading, misuse of material nonpublic information, and fraudulent trading schemes. Advanced data analytics supported investigations that resulted in charges against individuals and entities exploiting confidential information or engaging in other abusive practices.
• Investment Professionals: Market integrity depends on the adherence of investment professionals to legal and professional standards. The SEC charged several firms and individuals for fraudulent activities, including Aon Investments for misleading a public pension fund and Macquarie for misvaluing client assets.
• Trial Highlights: The Division of Enforcement successfully litigated several high-profile cases. A notable victory was the first crypto-related trial involving Terraform Labs, which resulted in a $4.5 billion judgment. Another landmark case, SEC v. Panuwat, addressed insider trading based on correlated securities trading, securing a favorable jury verdict. These trials underscored the SEC's commitment to addressing evolving enforcement challenges effectively.

Insights for Market Participants

The SEC's fiscal year 2024 results provide valuable lessons for firms seeking to align with regulatory expectations. Key takeaways include the following:

• Proactive Compliance
  The SEC's enforcement strategy rewards firms that self-report, remediate, and cooperate with investigations. Companies are encouraged to adopt proactive compliance measures to identify and address potential issues before they escalate.
• Recordkeeping Focus
  The SEC's focus on off-channel communications highlights the importance of robust recordkeeping systems. Firms must ensure all business communications are conducted through approved channels and adequately documented to meet regulatory requirements.
• Marketing Practices
  Adherence to the SEC's Marketing Rule is non-negotiable. Firms should review their advertising materials to ensure they provide accurate and transparent information, particularly when using hypothetical performance data or making claims about past performance.
• Whistleblower Incentives
  The SEC's actions underscore the importance of maintaining strong whistleblower policies. Companies should ensure their internal reporting mechanisms are accessible and free from retaliation to encourage employees to report concerns internally before approaching regulators.

For more details, visit the official SEC Press Release.

Conclusion

The SEC's record-breaking $8.2 billion in financial remedies and targeted enforcement initiatives demonstrate its unwavering commitment to safeguarding investors and upholding federal securities laws. For firms operating in this evolving regulatory environment, the stakes have never been higher.

At FinTech Law, we are committed to helping our clients succeed by providing the guidance and support needed to navigate complex regulatory landscapes. Contact us today to learn how we can help your business stay compliant and thrive in a challenging environment.