The Securities and Exchange Commission on Friday announced it filed 583 total enforcement actions in fiscal 2024, which ended September 30, and obtained orders for $8.2 billion in financial remedies, the largest in the SEC’s history, with a large chunk of those funds coming from a securities fraud case.
The $8.2 billion in remedies was made up of $6.1 billion in disgorgement and prejudgment interest and $2.1 billion in civil penalties. About 56% of the remedies came from a monetary judgment obtained following the SEC’s jury trial win against Terraform Labs PTE Ltd. and Do Kwon on charges of securities fraud. A jury held the labs and business executive liable for orchestrating a years-long fraud involving cryptocurrency asset securities.
The regulator’s 583 total enforcement actions showed a 26% decline in instances of enforcement, compared with fiscal 2023.
“The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable,” said SEC Chair Gary Gensler in a statement. “As demonstrated by this year’s results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike.”
Some areas of enforcement relevant to advisers include:
Off-Channel Communications
The SEC continued an initiative to ensure that broker/dealers, investment advisers and credit ratings agencies comply with recordkeeping requirements for communicating with and tracking clients.
In fiscal 2024, the commission brought recordkeeping cases resulting in more than $600 million in civil penalties against more than 70 firms. Since December 2021, the initiative has resulted in charges against more than 100 firms and more than $2 billion in penalties.
Marketing Rule
The SEC continued enforcement of its marketing rule, which went into effect in late 2022 and is aimed at ensuring investment advisers do not mislead clients.
SEC investigations led to settled charges against more than a dozen investment advisers. The firms were charged for advertising hypothetical performance without ensuring that performance was relevant to the likely financial situation and investment objectives of the intended audience; using untrue or unsubstantiated statements of material fact and/or testimonials, endorsements or third-party ratings that lacked the required disclosures; and advertising misleading performance metrics that were not fair and balanced.
The SEC did not disclose the total amount from the settlements.
Emerging Technologies
“Fiscal year 2024 saw heightened investor risk from emerging technologies and cybersecurity incidents and from market participants using social media to exploit elevated investor interest in emerging investment products and strategies,” the SEC wrote in its report.
In turn, the regulator investigated noncompliance and “false or misleading disclosures” regarding artificial intelligence, social media, cybersecurity and cryptocurrency, among other areas.
In terms of artificial intelligence, the SEC charged QZ Asset Management for falsely claiming it would use proprietary AI-based technology to help generate strong weekly returns. It also settled charges with investment advisers Delphia and Global Predictions for making false and misleading statements about purported use of AI in their investment processes.
In terms of cybersecurity, the SEC settled charges with the New York Stock Exchange for not reporting a cyber intrusion in a timely way. It also settled charges with Equiniti Trust Co. LLC for failing to ensure that client securities and funds were protected against theft or misuse and with R.R. Donnelley & Sons for disclosure and internal failures related to cybersecurity incidents.
Investment Professionals
The SEC also brought enforcement actions against investment professionals for “alleged fraud and other securities law violations.”
These included settled charges against registered investment adviser MassAve Global Inc. for making false and misleading statements to investors regarding its fund’s holdings and exposures and against Aon Investments for misleading a client, the Pennsylvania Public School Employees’ Retirement System, about the reason for a discrepancy between two calculations of Pennsylvania PSERS’s investment returns.
Gensler, appointed by the administration of President Joe Biden, announced Thursday that, as most recent SEC chairs have done, he will step down on the day President-elect Donald Trump takes office, January 20, 2025.
Tags: Gary Gensler, marketing rule, SEC