The SEC has been an active cop on the beat, as reflected in its recently released Enforcement Division statistics for the 2023 fiscal year, ended September 30, 2023. Both the total number of SEC enforcement actions and the number of “standalone” enforcement actions rose in FY 2023 compared to the prior year. The agency also filed the most enforcement actions against public companies since FY 2019. In addition, the SEC obtained the second highest annual amount of financial remedies in SEC history.
The SEC’s November 14, 2023, press release regarding the FY 2023 enforcement statistics can be found here. An addendum reflecting the agency’s enforcement statistics can be found here. Cornerstone Research’s November 15, 2023 report on public company enforcement actions, written in collaboration with the NYU Law School’s Pollack Center for Law & Business, can be found here. Cornerstone Research’s November 15, 2023 press release about the public company report can be found here.
According to the SEC’s report, the agency filed 784 enforcement actions in FY 2023, the most since FY 2019 (when there were 862 actions filed) and representing a 3% increase over the 760 filed in FY 2022. Of the 784 FY 2023 enforcement actions, 501 were “standalone” actions, with the remainder representing follow-on administrative actions (162) and delinquent filing matters (121). The 501 standalone actions in FY 2023 was the highest number of standalone filings since FY 2019 (526), representing an 8% increase over the number of standalone actions in FY 2022 (X).
According to the Cornerstone Research report, there were 91 new actions filed against public companies and subsidiaries in FY 2023, representing 18% of all FY 2023 standalone actions. The 91 public company enforcement actions during the year represents a 34% increase over the 68 public company action in FY 2022 and is the highest annual number of public company enforcement actions since FY 2019 (96 actions). Interestingly, 31 of the FY 2023 actions (34% of the total) were filed in September 2023, the final month of the fiscal year (representing the highest monthly total number of public company actions in the database).
The SEC report specifically notes that a number of the SEC public company enforcement actions involved actions against companies in the electric vehicle industry, including XL Fleet, Canoo, Kandi Technologies Group, and Hyzon Motors, “for making materially misleading statements regarding revenue projections, sales, or product launches.”
The SEC report also notes that FY 2023 was a “record-breaking year” for the agency’s Whistleblower Program. The SEC received over 18,000 whistleblower tips during the year, not only a record number of tips but also approximately 50% more tips than during the prior fiscal year. The SEC also issued total whistleblower awards during FY 2023 of nearly $600 million, a highest-ever annual total, inclusive of a record-breaking $279 million award to one whistleblower.
During FY 2023, the SEC obtained $4.949 billion in financial remedies, the second-highest amount in SEC history, below only the 2022 FY record of $6.439 billion in financial remedies. The FY 2023 financial remedies included $3.369 billion in disgorgement and prejudgment interest and $1.580 billion in civil penalties (both of which amounts are also the second highest on record).
Interestingly, 92% of the 2023 public company enforcement actions were brought as administrative actions, the highest annual percentage since FY 2019. As readers know, the U.S. Supreme Court has a case on its docket this term that will address the constitutionality of the SEC’s use of its own administrative courts to pursue enforcement actions.
According to the Cornerstone Research report, total monetary settlements in FY 2023 public company enforcement actions totaled $1.3 billion, the lowest annual amount in the last eight fiscal years, and well below the record $2.8 billion in public company settlements in FY 2022 and only 70% of the $1.9 billion in annual average total public company settlements during the period FY 2014-FY 2022.
The average public company settlement in FY 2023 was $15 million, 64% below the FY 2022 average of $42 million. The median FY 2023 public company settlement was $4 million, consistent with the annual average median settlement during the period FY 2014-FY2022 of $4 million.
The data and text in the SEC’s report sheds some interesting light on the agency’s enforcement priorities. The report emphasizes the agency’s enforcement efforts in a number of different areas, including particularly with respect to crypto, cybersecurity, and ESG. The report also reflects a number of policy positions, such as, for example, that “individual accountability remains a pillar of the SEC’s enforcement program” (noting that about two-thirds of the FY 2023 enforcement actions involved charges against one or more individuals).
The report also notes that it “consistently rewarded cooperation,” and that “gatekeepers” such as accountants, auditors, and other professionals “play a critical role in the capital markets as the first line of defense against misconduct.”
Both the SEC’s report and the Cornerstone Research report are quite detailed and quite interesting, and merit being read at length and in full.