In the first half of fiscal year (“FY”) 2019, enforcement activity at the Securities and Exchange Commission (“SEC”) remained at near record levels, according to a recent Cornerstone Research report. This front-loaded activity is remarkable considering that the agency had limited operations when the government was shut down for several weeks in December and January, less than 3 months after the fiscal year began on October 1.
Between October 2018 and March 2019, the SEC brought 52 new actions against public companies and their subsidiaries. This represents a 225% increase compared to the same period last year when the SEC only brought 16 actions. (While enforcement actions had gotten off to a relatively slow start during that comparable period in FY 2018, there were a record number of such actions brought in the second half of that fiscal year—55 actions.)
Of the 52 actions brought by the SEC during the first half of FY 2019, 25 involved investment adviser or investment company allegations against public companies and their subsidiaries. This is the result of the SEC’s Share Class Selection Disclosure Initiative (“Initiative”) that was launched in February 2018. That Initiative was created to address a trend that the SEC identified in recent years where investment advisers were selecting mutual fund share-classes that paid them a higher than necessary fee without disclosing the availability of lower cost share-classes in the same fund that were not as advantageous to the advisers. The SEC had been concerned that many investment advisers were not complying with their obligation under the Investment Advisers Act of 1940 to fully dis
In the first half of fiscal year (“FY”) 2019, enforcement activity at the Securities and Exchange Commission (“SEC”) remained at near record levels, according to a recent Cornerstone Research report. This front-loaded activity is remarkable considering that the agency had limited operations when the government was shut down for several weeks in December and January, less than 3 months after the fiscal year began on October 1.
Between October 2018 and March 2019, the SEC brought 52 new actions against public companies and their subsidiaries. This represents a 225% increase compared to the same period last year when the SEC only brought 16 actions. (While enforcement actions had gotten off to a relatively slow start during that comparable period in FY 2018, there were a record number of such actions brought in the second half of that fiscal year—55 actions.)
Of the 52 actions brought by the SEC during the first half of FY 2019, 25 involved investment adviser or investment company allegations against public companies and their subsidiaries. This is the result of the SEC’s Share Class Selection Disclosure Initiative (“Initiative”) that was launched in February 2018. That Initiative was created to address a trend that the SEC identified in recent years where investment advisers were selecting mutual fund share-classes that paid them a higher than necessary fee without disclosing the availability of lower cost share-classes in the same fund that were not as advantageous to the advisers. The SEC had been concerned that many investment advisers were not complying with their obligation under the Investment Advisers Act of 1940 to fully disclose all material conflicts of interest related to their mutual fund share-class selection practices, and that harm to investors as a result of this lack of candor could be widespread.
As part of the Initiative, in order to motivate advisers to come forward and self-report possible disclosure violations relating to share-class selection, the SEC Division of Enforcement would recommend that the SEC accept favorable settlement terms for these self-reporting advisers, including declining to impose civil penalties on them. On March 11, 2019, arising from the results of the Initiative, the SEC filed settled actions against 79 investment advisers, almost one-third of which were public companies and subsidiaries. While the average monetary settlement at $3 million was just a fraction of the average from the same period the year before, that disparity is no doubt due to the Initiative’s mandate to forgo civil damages from self-reporters. Overall, the SEC’s monetary settlements in public company and subsidiary actions totaled $742 million in the first half of FY 2019.
With the second half of FY 2019 under way, it will be interesting to see if the SEC continues its enforcement momentum and whether the finance, insurance, and real estate industries continue to be a target of the SEC’s focus.
close all material conflicts of interest related to their mutual fund share-class selection practices, and that harm to investors as a result of this lack of candor could be widespread.
As part of the Initiative, in order to motivate advisers to come forward and self-report possible disclosure violations relating to share-class selection, the SEC Division of Enforcement would recommend that the SEC accept favorable settlement terms for these self-reporting advisers, including declining to impose civil penalties on them. On March 11, 2019, arising from the results of the Initiative, the SEC filed settled actions against 79 investment advisers, almost one-third of which were public companies and subsidiaries. While the average monetary settlement at $3 million was just a fraction of the average from the same period the year before, that disparity is no doubt due to the Initiative’s mandate to forgo civil damages from self-reporters. Overall, the SEC’s monetary settlements in public company and subsidiary actions totaled $742 million in the first half of FY 2019.
With the second half of FY 2019 under way, it will be interesting to see if the SEC continues its enforcement momentum and whether the finance, insurance, and real estate industries continue to be a target of the SEC’s focus.