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SEC Enforcement Actions Against Advisers is on the Decline

The Investment News reported this week that the Securities and Exchange Commission (SEC) has relaxed its enforcement of investment advisers under the Trump administration. In 2017 the SEC investigated 82 standalone cases against advisers and firms, compared to 98 the previous year. Enforcement actions filed by the SEC in 2017 totaled 754 cases, 114 fewer actions than a record number of 868 in 2016. The SEC collected $3.8 billion in disgorgement and penalties in 2017, down from more than $4 billion collected in 2016. The decline is attributed to the self-reporting program Municipalities Continuing Disclosure Cooperation initiative, which targets misstatements and omissions in municipal bond offerings.

Five core principles guide the SEC’s decision to bring enforcement actions:

1.) Focus on protecting the long-term interests of retail investors

2.) Pursuing individual wrongdoers

3.) Keeping pace with technological change

4.) Imposing sanctions on a case-by-case basis rather than a “formulaic or statistic-oriented approach”

5.) Constantly assessing the division’s allocation of resources

SEC’s Press Release

The co-directors of the SEC’s enforcement division, Stephanie Avakian and Steven Peikin state in SEC’s press release that accompanied the report that “We do not face a binary choice between protecting Main Street and policing Wall Street. Simply stated, our oversight of Wall Street is most effective, and protects those who need it most when viewed through a lens focused on retail investors.”
In September the agency created the Retail Strategy Task Force which will use technology and data analytics to identify misconduct that affects retail investors but will not pursue the cases itself.
We are interested to see whether California’s Department of Business Oversight and FINRA’s enforcement division’s statistics follow a similar downward trend or continue to increase. While the SEC and FINRA have different enforcement priorities, both value protecting the investing public. If their enforcement statistics diverge, it should cause the investing public and investment advisors to ask why.

Loren Barr
by Loren Barr
Updated: October 28, 2020

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