Home > News > Newsmakers > SEC Rakes in Record $6.44 Billion in Penalties, Disgorgement in Fiscal 2022
Newsmakers

SEC Rakes in Record $6.44 Billion in Penalties, Disgorgement in Fiscal 2022

Whistleblower program doles out $229 million.
By Michael Katz


The Securities and Exchange Commission has collected a record $6.44 billion in disgorgement and penalties during the fiscal year that ended Sept. 30, up from $3.85 billion last year, and easily surpassing the former record of $4.68 billion set in fiscal 2020. [Source]

The regulator raked in close to $4.2 billion in civil penalties, nearly three times the $1.46 billion collected the previous fiscal year. However, disgorgement totals were down for the third straight year to about $2.24 billion, from nearly $2.40 billion in fiscal 2021 and $3.59 billion the year before that. In June 2020, the Supreme Court vacated a $26.4 million disgorgement fine levied by the SEC and limited the scope of what the regulator can demand via disgorgement. But the regulator has more than made up for that with increased penalties.

The SEC said it filed 760 enforcement actions in fiscal year 2022, up from 697 the previous year. Among the enforcement actions, 462 were new or stand-alone enforcement actions, up from 434 in fiscal 2021; 169 were follow-on administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets, up from 143 the previous year; and 129 actions were against issuers allegedly delinquent in making required SEC filings, up from 120 last year.

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To deter future misconduct and enhance public accountability, the SEC said it recalibrated penalties for certain violations, included prophylactic remedies. It said, for example, that the more than $1.2 billion paid in penalties for recordkeeping violations alone “made clear that the fines were not just a cost of doing business.”

Among the higher profile cases for the regulator during the fiscal year, it ordered financial services firm Allianz to pay more than $1 billion in penalties, disgorgement and prejudgment interest over an alleged fraud that hid the huge risks of a complex options trading strategy. The SEC imposed a $200 million penalty against Barclays for an illegal over-issuance of securities. The $100 million penalty it imposed on Ernst & Young over admitted cheating by their audit professionals was the largest ever against an audit firm.

Fiscal year 2022 also saw the second highest total of SEC whistleblower awards in both the number of whistleblowers awarded and the total dollar amount. The regulator issued approximately $229 million in 103 awards. The Whistleblower Program also received a record of more than 12,300 tips alleging wrongdoing during the fiscal year.

The SEC said it remains focused on enforcement in the crypto asset securities market. Earlier this year, the regulator said it would nearly double the size of its Crypto Assets and Cyber Unit by adding 20 positions to the team.

It also said its attention is focused on environmental, social and governance issues with respect to public companies and investment products and strategies. For example, it charged BNY Mellon Investment Management for making materially misleading statements and omitting information about its consideration of ESG principles in investment decision-making for certain mutual funds.

However, despite the record number of penalties taken in by the SEC, the regulator said its desire is not to take in more money, but for companies and investors to stop breaking the law.

“We don’t expect to break these records and set new ones each year, because we expect behaviors to change,” Gurbir Grewal, the director of the SEC’s Division of Enforcement, said in a statement. “We expect compliance.”

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SEC Collects Record $4.68 Billion in Disgorgement, Penalties in Fiscal 2020

Supreme Court Reigns in SEC’s Disgorgement Powers

SEC Whistleblower Program Has Record Year in Fiscal 2021

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Home > News > Asset Allocation > T. Rowe: Conventional Wisdom on ’23 Market Is a Crock
Asset Allocation

T. Rowe: Conventional Wisdom on ’23 Market Is a Crock

Growth stocks rebound, banks are vulnerable, consumer staples rule—all those shibboleths are so last year, the firm’s CIO, John Linehan, says.

By Larry Light


If there’s one expectation for next year that’s almost universally accepted, it’s that a recession is coming. Beyond that, most advice to investors, whether institutional or retail, is that growth investing will return in the recovery, but during the downturn bank stocks will be slammed and consumer staples shares will do well.

John Linehan, T. Rowe Price’s CIO, is having none of this. In a briefing, he labeled them “accepted market truths that may not work this time.” To him, this time really is different. High inflation and rising interest rates are two components that roil the mix lately, he noted.

“We really have to throw conventional wisdom out the window when we think about what the markets are going to do over the course of the next year, and indeed, over the next decade,” Linehan said.

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He zeroed in on financial services (banks, et al), which during this bear-market year through the end of October, were up 6.3%. Ordinarily, they would be bracing for a recession because loan defaults surge in stricken times. But, Linehan maintained, “this goes back to fighting the last war.”

After the 2008-09 financial crisis, he pointed out, banks are better capitalized and have higher underwriting standards. Hence, there likely will be fewer loan defaults in the next recession, and banks will be better equipped to handle them.

Consumer staples, long touted as recession-proof—people gotta eat, right?—won’t fare as well ahead, as T. Rowe expects inflation to linger.

Alas, with such persistent inflation, staples’ defensive capabilities will be sundered, and signs of that already are appearing, he argued. They are passing “on significant cost inflation in terms of the cost of their inputs that they go to sell,” Linehan said. “As a result, their profit margins have been squeezed.” According to FactSet research, S&P 500 margins have been falling for the past five quarters, although they still are above the five-year average.

Right now, as is often the case in tough times, value stocks are outperforming growth. The S&P 500 value index is down just 5% this year, while its growth counterpart is off 26%. But continued high rates and inflation will block growth from its customary bounce back, he opined.

The next recession and today’s bear market won’t be what investors have come to expect, Linehan said. ”Bear markets are a lot like Tolstoy’s unhappy families: No two are alike.”

 

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