(Article from Registered Funds Regulatory Update, January 2025)
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On November 22, 2024, the SEC announced its enforcement results for fiscal year 2024. Over the year, the SEC filed 583 total enforcement actions, down from the 784 actions filed in the 2023 fiscal year, and obtained orders for $8.2 billion in financial remedies, the highest amount in SEC history. The $8.2 billion in aggregate financial remedies consisted of $6.1 billion in disgorgement and prejudgment interest, the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record. The SEC also obtained orders barring 124 individuals from serving as officers and directors of public companies, the second-highest number of officer and director bars obtained in a decade.
The SEC distributed $345 million to harmed investors, marking a benchmark of more than $2.7 billion returned to investors since the beginning of fiscal year 2021, and issued whistleblower awards totaling $255 million, down from nearly $600 million in the previous year, the most ever awarded in a single year. The SEC reported that it received more than 45,130 tips, complaints, and referrals in total in fiscal year 2024, the most ever received in one year, including over 24,000 whistleblower tips (more than 14,000 of which were submitted by two individuals), up from the over 18,000 tips received in the prior year.
The SEC issued enforcement actions against a wide variety of market participants, including broker-dealers, credit rating agencies, investment advisers, gatekeepers, and individuals. Notably, the SEC focused on compliance with the recordkeeping requirements of the federal securities laws, the marketing rule, the disclosure requirements for holdings and transactions of certain insiders and market participants under the federal securities laws, whistleblower rights and protections, and in the evolving crypto, cybersecurity, and AI spaces. The enforcement actions brought or settled by the SEC in fiscal year 2024 included, for example:
- Recordkeeping cases resulting in more than $600 million in civil penalties against more than 70 firms, including the SEC’s first cases charging recordkeeping violations against municipal advisors. This initiative has resulted in charges against more than 100 firms resulting in more than $2 billion in aggregate penalties since December 2021.
- Enforcement actions to address Dodd-Frank whistleblower protection rule violations, including actions in which firms purported to limit the ability of customers to voluntarily contact the SEC or required employees to waive their rights to a possible whistleblower monetary award. These actions included, for example, an $18 million civil monetary penalty against J.P. Morgan, which marks the largest penalty on record for a standalone violation of the whistleblower protection rule.
- Charges against more than 24 entities and individuals for failures to timely report their holdings and transactions in public company stock or for contributing to filing failures by their officers and directors.
- Charges against 11 institutional investment managers for failures to disclose certain securities holdings in reports that they were required to file as a result of having discretion over more than $100 million in certain securities.
- Cybersecurity related charges against: (i) The Intercontinental Exchange, Inc. and nine wholly-owned subsidiaries, including the NYSE, for failure to timely report a cyber intrusion; (ii) Equiniti Trust Company LLC (f/k/a American Stock Transfer & Trust Company LLC) for failures to ensure client securities and funds were protected against theft or misuse, which led to losses of millions of dollars in client funds; and (iii) R.R. Donnelly & Sons for disclosure and internal control failures relating to cybersecurity incidents.
The year’s largest financial remedy ordered is attributable to a more than $4.5 billion monetary judgement obtained after the SEC’s jury trial win against Terraform Labs and Do Kwon, who were charged with one of the largest securities frauds in U.S. history. Some of the year’s other largest penalties were issued as a result of the SEC’s actions against Morgan Stanley for a multi-year fraud involving disclosure of confidential information about certain large “block trades,” whereby the firm agreed to pay approximately $166 million in disgorgement and prejudgment interest and an $83 million civil monetary penalty to resolve the charges. In addition, the SEC charged investment advisory firm Macquarie for overvaluing approximately 4,900 largely illiquid CMOs held in certain advisory accounts and for executing certain cross-trades between advisory clients that impermissibly favored certain clients over others. Macquarie agreed to pay disgorgement and prejudgment interest of $9.8 million as well as a $70 million civil monetary penalty to resolve the SEC’s charges.
Notably, the SEC consistently recognized meaningful cooperation with the agency to promote compliance across the securities industry, which it emphasized encourages firms to, among other things, proactively self-police, self-report, and remediate violations. The SEC noted increased participant efforts in relation to self-reporting, remediation, and cooperation with the SEC in fiscal year 2024, and rewarded public issuers, private companies, and advisers in connection with a range of violations, including material misstatement, recordkeeping, and whistleblowing violations. The SEC noted in particular that the enforcement numbers for this year do not reflect countless enforcement actions that did not occur due to such market participant cooperation.
SEC Announces Enforcement Results for Fiscal Year 2024, SEC Press Release (Dec. 17, 2024), available at: https://www.sec.gov/newsroom/press-releases/2024-186.