The SEC Brought More Charges This Year. Here’s Who They Targeted.

The Securities and Exchange Commission brought more regulatory enforcement actions in 2019, which led to a 10 percent increase in total fines paid to the agency, the latest annual report from its division of enforcement shows. 

The SEC brought 862 enforcement actions over the past fiscal year, up from from 821 in fiscal year 2018. The actions targeted misconduct including auditors failing to follow their internal rules and major financial institutions mishandling American depository receipts, among other major issues, according to the report, which was published Wednesday. 

“The results depicted in this report reflect the division’s focus on rooting out misconduct that can do significant harm to investors and our markets, and the focus the division places on identifying wrongdoing and taking prompt action to effectively help harmed investors,” said SEC chairman Jay Clayton in a statement.   

The SEC said it ordered those in violation of the rules to pay more than $4.3 billion combined, a 10 percent year-over-year increase. The top five percent of cases by size accounted for 70 percent of the total penalties and disgorgement that groups were ordered to pay. 

The increase was driven by investment advisory firms and investment companies, which made up 36 percent of the SEC’s enforcement actions. This is compared with 22 percent of the SEC’s enforcement actions in fiscal year 2018. 

These included the charges the SEC brought in September against two companies owned by Prudential Financial, which the SEC alleged failed to disclose conflicts of interest at the funds they advised.   

Meanwhile, even as the number of broker-dealer actions brought by the SEC fell from 13 percent in 2018 to seven percent in 2019, the regulatory body brought actions against heavyweights in the industry, including Bank of New York Mellon, JP Morgan Chase, Citibank, and Merrill Lynch, among others, for allegedly pre-releasing American depository receipts, a type of equity investment in foreign companies offered by American banks.  

[II Deep Dive: SEC: KPMG Employees Used Stolen Data, Cheated on Exams] 

The SEC said it focused on auditors, or “gatekeepers,” in the markets, which included major providers in the industry like PricewaterhouseCoopers and KPMG.  

KPMG allegedly altered past audit work based on stolen information, and audit professionals at the firm allegedly cheated on internal training exams by either sharing answers or changing final test scores, according to prior SEC actions detailed in the enforcement division’s report.  

“We have learned important lessons through this experience and we are a stronger firm as a result of the actions we are taking to strengthen our culture, our governance and our compliance program,” a KPMG spokesperson said in a statement to Institutional Investor when the exam cheating charges were announced this summer.

Meanwhile, PricewaterhouseCoopers and one of its employees were charged with allegedly violating auditor independence rules and engaging in improper professional conduct. A PwC spokesperson said in a statement to II at the time that the firm takes “independence and its important role in the capital markets seriously.”