New Study Shows Dramatic Decline in SEC Enforcement Activity
We stray slightly from wine-law specific news here to discuss a recent study of what we think will be interesting not just to the wine industry, but to companies and investors at large. A study released by Cornerstone Research using data from the Securities Enforcement Empirical Database maintained by Cornerstone and the NYU Pollack Center for Law & Business shows a dramatic decline in SEC enforcement activity against public companies following the change in leadership at the nation’s chief securities regulator.
Public companies, those that do business with and invest in public companies, or anyone that buys or sells securities in general should consider the ramifications of what this potentially more-lax SEC enforcement activity might suggest for their future.
The study, available here, reveals a 33% decline in new enforcement action taken by the SEC against public companies and their subsidiaries in fiscal year 2017 as compared to 2016. Even more telling, the study found a significant decline in “several activity measures, including overall filings against public company and subsidiary defendants, in the second half of FY 2017 versus the first half.”
SEC leadership changed in the middle of the 2017 fiscal year, revealing that the decline in enforcement activity under the new administration is even more significant than the one-third drop off from FY 2016. The study found only 17 new enforcement actions against public company-related defendants in the second half of 2017, compared to 45 in the first half of the year. The study noted that for the preceding seven years (2010-2016), activity historically increased in the second half of the year.
Settlement activity also dramatically declined, with the SEC recovering only $196 million in the second half of 2017, compared to $1 billion in the first half of the year. (Through its Fair Funds program, the SEC often returns the funds it recovers to investors that were harmed by the alleged misconduct.)
The study was limited to public companies and their subsidiaries, so its meaning to private companies is not entirely clear. There has not been any formal announcement of full FY 2017 enforcement results by the SEC (the fiscal year ended September 30). It is interesting to note though that shortly after the end of FY 2016, on October 11, 2016, the SEC announced a “new single year high for SEC enforcement actions.” No similar announcement of full year enforcement results has been put out this year.
For questions related to this, please contact Josh Devore.