The Securities and Exchange Commission (SEC) has reported an active enforcement year in fiscal 2023, particularly impacting investment advisors, broker-dealers, and securities offerings. This period saw the SEC initiate 784 enforcement actions, resulting in over $4.9 billion in penalties, just shy of the preceding year's record of $6.4 billion.
SEC Chairman Gary Gensler emphasized the significant role of the Division of Enforcement in maintaining market integrity and holding accountable those who violate securities laws. In a notable achievement, the SEC redistributed $930 million to investors affected by misconduct, marking the second consecutive year this amount exceeded $900 million.
The enforcement actions were predominantly focused on investment advisors, investment companies, and broker-dealers, each constituting 18% of total actions. Securities offerings, especially unregistered crypto offerings, led the enforcement activities with a 21% share.
Key areas of focus in the SEC's enforcement actions included:
• Off-Channel Communications: The SEC imposed over $400 million in fines on various firms for failing to keep proper records of business communications conducted through unauthorized channels like WhatsApp. This continued enforcement, although lower than the $1.3 billion in penalties in fiscal 2022, underscores the SEC's commitment to ensuring stringent record-keeping in financial services.
• Marketing Rule Violations: Fiscal 2023 saw the SEC's first enforcement actions under the updated Marketing Rule, targeting nine investment advisors for promoting hypothetical performance results to mass audiences. This rule, revising decades-old regulations, allows the use of third-party endorsements and client testimonials under strict compliance requirements.
• Crypto Enforcement: Despite SEC Chairman Gensler's assurances of impartiality towards crypto, the SEC actively pursued actions against crypto offerings it deemed should be registered as securities. This included cases against FTX and its founder, as well as the first cases against issuers of non-fungible tokens (NFTs). The SEC also settled cases with celebrities for failing to disclose compensation for promoting crypto assets.
• Stock Manipulation: A high-profile case involved eight individuals who allegedly used their online influence to manipulate stock prices for personal gain, netting $114 million. This case, which involved both civil and criminal charges, highlighted the SEC's vigilance against market manipulation schemes.
• ESG Oversight: With the rise of environmental, social, and governance (ESG) investing, the SEC has increased its scrutiny on how these strategies are marketed and implemented. This included a $19 million settlement with a Deutsche Bank unit over alleged misrepresentations in ESG investments.
These enforcement actions reflect the SEC's ongoing commitment to safeguarding market integrity and protecting investors from financial malpractices. Investment advisors and broker-dealers are advised to heed these developments closely to ensure compliance with evolving regulatory standards.
