The Securities and Exchange Commission today [November 18] announced that it filed 434 new enforcement actions in fiscal year 2021, representing a 7 percent increase over the prior year. Seventy percent of these new or “stand-alone” actions involved at least one individual defendant or respondent. The new actions spanned the entire securities waterfront, including against emerging threats in the crypto and SPAC spaces. For example, the SEC charged a company for operating an unregistered online digital asset exchange, charged a crypto lending platform and top executives alleging a $2 billion fraud, and brought an action against a special purpose acquisition company, its merger target, top executives, and others for alleged misconduct in a SPAC transaction. The SEC’s whistleblower program was critical to these efforts and had a record-breaking year.
The agency filed 697 total enforcement actions in fiscal year 2021, including the 434 new actions, 120 actions against issuers who were delinquent in making required filings with the SEC, and 143 “follow-on” administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders. This represented a 3 percent decrease over the total actions filed in fiscal year 2020.
“The SEC’s Enforcement Division is the cop on the beat for America’s securities laws,” said Chair Gary Gensler. “As these results show, we go after misconduct wherever we find it in the financial system, holding individuals and companies accountable, without fear or favor, across the $100-plus trillion capital markets we oversee.”
“This year has seen a number of critically important and first-of-their-kind enforcement actions, as well as record-breaking achievements for our whistleblower program, which we expect will lead to even more successful actions in the future,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Undeterred by the challenges of the pandemic, the dedicated public servants in the Enforcement Division have continued to overcome obstacles to bring these cases that protect investors and promote market integrity.”
In fiscal year 2021, which ended on Sept. 30, the SEC also obtained judgments and orders for nearly $2.4 billion in disgorgement and more than $1.4 billion in penalties, which represented a respective 33 percent decrease and 33 percent increase over amounts ordered in the prior fiscal year in these categories.
Fiscal year 2021 also was a record year for whistleblower awards, with the SEC awarding a total of $564 million to 108 whistleblowers. The whistleblower program also surpassed $1 billion in awards over the life of the program.
Overview of SEC Enforcement in Fiscal Year 2021
In fiscal year 2021, the SEC filed noteworthy enforcement actions across new areas, including a number of first-of-their-kind actions:
- Involving securities using decentralized finance, or “DeFi,” technology;
- Charging securities law violations on the “dark web”;
- Enforcing a key rule on the duties of municipal advisors;
- Involving Regulation Crowdfunding;
- Charging an alternative data provider with securities fraud;
- Involving failures to timely file and deliver Forms CRS; and
- Against an order and execution management system provider that facilitated electronic trading for failing to register as a broker-dealer.
In addition, the SEC filed impactful enforcement actions that spanned the securities markets, including the following matters:
- A case charging General Electric with violating the antifraud, reporting, disclosure controls, and accounting controls provisions of the securities laws;
- Actions charging Kraft-Heinz and two former executives with a years-long expense management scheme;
- A case against TIAA-CREF’s subsidiary for alleged violations in retirement rollover recommendations;
- An action against China-based Luckin Coffee for allegedly defrauding investors about its financial condition;
- A case charging Robinhood Financial with misleading customers about its compensation for routing customer orders;
- An action charging three media companies with illegal offerings of stock and digital assets;
- A litigated case charging AT&T and three investor relations executives with selectively providing information to Wall Street analysts;
- An auditor misconduct case against Ernst & Young and three partners;
- Insider trading cases against a global IT manager at a pharmaceutical company and an investment bank compliance analyst; and
- Cases charging entities for deficient cybersecurity procedures, cybersecurity disclosure controls failures, and misleading investors about a serious cyber breach.
Other examples of enforcement actions in key priority areas include:
Holding Individuals Accountable
- Charged corporate executives and other players, including the former CEO and Chairman of Wells Fargo and the former head of Wells Fargo’s Community Bank; the founder and former CEO of alternative fuel truck manufacturing company Nikola; the former CEO and CFO of WageWorks; and the former CEO and CFO of FTE Networks.
- Obtained bars from serving as public company officers or directors against numerous individuals, including: the CEO of Loci Inc. who was charged with misleading investors about the company’s digital asset securities business; the CEO of a human resources company charged with falsifying the company’s financial condition; an attorney and former president of a natural resources company charged with manipulative trading; and CEOs and other executives of various microcap companies.
Ensuring Gatekeepers Live Up to Their Obligations
- Suspended two former KPMG auditors for alleged improper professional conduct during the audit of the not-for-profit College of New Rochelle.
- Charged a CPA with failing to register his firm with the Public Company Accounting Oversight Board (PCAOB) and failures in auditing and reviewing the financial statements of a public company client.
- Charged an audit firm partner for allegedly engaging in improper professional conduct during audits of a public company client.
- Charged two attorneys – one of whom was previously disbarred – for their roles in an alleged scheme to fraudulently facilitate the sale of millions of shares of microcap securities to retail investors.
- Barred a securities lawyer from practicing or appearing before the SEC.
Rooting Out Misconduct in Crypto
- Charged entities and individuals with unregistered and/or fraudulent offerings of digital asset securities, including: fraud and unregistered offering charges against three individuals who founded and promoted digital asset companies; charges against an issuer and its founders for allegedly defrauding more than a thousand investors in an unregistered offering of digital asset securities; and charges against Ripple Labs and two of its executives alleging a $1.3 billion unregistered offering.
- Took action against other misconduct in the crypto market, including charging the operator of ICO listing website Coinschedule.com with unlawfully touting digital asset securities.
Policing Financial Fraud and Issuer Disclosure
- Brought a number of important actions against companies and executives, including: Under Armour; Sequential Brands Group; and SAExploration Holdings and four former executives.
- Rewarded cooperation and remediation by companies, including Gulfport Energy.
- Continued to use data analytics and other tools to uncover potential violations of the law, leading to charges against Healthcare Services Group in the Division’s ongoing Earnings Per Share Initiative and charges against eight companies in an initiative focused on companies’ notices of late filings of their quarterly or annual reports.
- Charged The Cheesecake Factory Incorporated with improper disclosures about the impact of the COVID-19 pandemic on its operations and financial condition.
Charging Improper Conduct by Investment Professionals
- Brought an action against UK-based investment adviser BlueCrest Capital Management for inadequate disclosures and other misstatements and omissions concerning its transfer of top traders to another fund, which will result in $170 million being returned to harmed investors.
- Charged investment advisers and their portfolio managers with misleading investors and others about their risk management practices over funds that lost more than $1 billion in two trading days.
- Charged a fund manager with fraudulently raising and misappropriating tens of millions of dollars in a private fund.
- Charged an unregistered investment adviser for allegedly defrauding a Puerto Rican municipality and misappropriating more than $7 million of taxpayer funds.
- Charged a rogue trader with causing millions of dollars of losses through unauthorized trading and bankrupting his broker-dealer firm.
- Charged a robo-adviser with breaching its fiduciary duties in connection with its investment of client assets into exchange-traded funds sponsored by its parent company.
- Charged an investment adviser for breaching its fiduciary duties in connection with its receipt of revenue sharing payments.
Protecting Market Integrity
- Charged S&P Dow Jones Indices for failures relating to a quality control feature of one of its volatility-related indices, which led S&P to publish and distribute stale index values during a period of unprecedented volatility.
- Charged former credit ratings agency Morningstar Credit Ratings with alleged disclosure and internal control violations in rating commercial mortgage-backed securities.
- Brought charges against UBS and other investment advisers and broker-dealers as part of the Division of Enforcement’s Exchange-Traded Products Initiative, which utilizes trading data analytics to uncover potential violations of the securities laws.
- Charged a company, its principal, and its trader with causing broker-dealers to violate Reg SHO by mismarking trades and related issues.
- Charged a global securities pricing service with compliance deficiencies related to so-called single broker quotes.
- Charged a broker-dealer for failures related to filing Suspicious Activity Reports.
Cracking Down on Insider Trading and Market Manipulation
- Brought insider trading charges against numerous individuals, including:
- A former biopharmaceutical company employee charged with insider trading in advance of his company’s announcement that it would be acquired by pharmaceutical giant Pfizer Inc.
- An insider trading ring that allegedly generated more than $3 million in profits by trading on confidential information about Netflix’s subscriber growth.
- A Silicon Valley insider trading ring charged with trading on confidential earnings information of two technology companies.
- Charged two individuals for alleged wash trading in the options of certain “meme stocks” in early 2021.
- Charged a quantitative analyst and a hedge fund trader for allegedly perpetrating front-running schemes, which were uncovered by the SEC’s data analytics tools.
- Charged numerous individuals, including the chairman of a public company, for their roles in alleged long-running fraudulent schemes that generated hundreds of millions of dollars from unlawful stock sales and harmed retail investors in the U.S. and around the world.
Enforcing the Foreign Corrupt Practices Act
- Charged Goldman Sachs in connection with the 1Malaysia Development Berhad (1MDB) bribery scheme, resulting in the company paying more than $1 billion to settle the SEC’s charges.
- Charged Deutsche Bank for internal control failures relating to its payments to third-party intermediaries that resulted in approximately $7 million in bribe payments or payments for unknown services.
- Charged WPP, the world’s largest advertising group, with violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA, resulting in a more than $19 million settlement.
- Charged Brazilian meat producers with an extensive, multi-year bribery scheme, resulting in a nearly $27 million settlement to resolve the SEC’s charges.
Guarding Against Public Finance Abuse
- Charged RBC Capital Markets and two individuals – the former head of municipal sales, trading, and syndication, and the former head of RBC’s municipal syndicate desk – with unfair dealing in municipal bond offerings.
- Charged a broker dealer and its former CEO with unfair dealing in connection with the tender offer of municipal bonds.
- Charged a school district and its former chief financial officer with misleading investors who purchased $28 million in municipal bonds.
Pursing Wrongdoing in Securities Offerings
- Charged an Israeli company and its former top executives with deceiving U.S. investors out of more than $100 million through fraudulent and unregistered sales of risky “binary option” securities.
- Charged two former executives of a subprime automobile finance company with misleading investors about the loans that backed their $100 million offering.
- Charged a company and two managing members with participating in a fraudulent, unregistered offering of securities in a purported “green” mining venture.
- Charged a top executive at two companies for allegedly defrauding investors by “scalping” (secretly selling stock while paying promoters to recommend retail investors buy the stock), misappropriating funds, and falsely promoting apps that he claimed would facilitate cryptocurrency transactions and help combat the coronavirus.
- Charged the co-founders of a San Francisco-based medical testing company for allegedly defrauding investors out of $60 million by falsely portraying the company as a successful start-up with a proven business model and strong prospects for future growth, and the former CEO of another Silicon Valley technology company for allegedly defrauding investors out of $80 million by falsely claiming strong and consistent growth.
- Brought actions against wrongdoers targeting affinity groups, including:
- Charging a jewelry wholesaler with raising more than $69 million and operating a fraudulent Ponzi-like scheme targeting current and retired police officers and firefighters;
- Charging a company and its CEO for an alleged $119 million securities fraud targeting members of the South Asian American community;
- Charging a New Jersey resident with defrauding investors, most of whom were members of the Orthodox Jewish community; and
- Charging a Florida payday loan company and its CEO with fraudulently raising at least $66 million from retain investors including members of the Venezuelan-American community.
Swiftly Acting to Protect Investors
- Obtained an asset freeze and other emergency relief in an enforcement action against a Los Angeles-based actor and his company in connection with an alleged $690 million Ponzi scheme.
- Obtained emergency relief in an action charging a New York-based real estate developer with fraudulently raising more than $229 million through EB-5 securities offerings.
- Filed an emergency action, and obtained a temporary restraining order and asset freeze against several defendants, in a case alleging a $110 million Ponzi scheme.
- Suspended trading in the securities of more than two dozen companies because of questions about increased trading activity and volatility connected to the winter’s “memestock” trading.
- Took emergency action in numerous other cases, including:
- to freeze assets in an alleged fraudulent scheme relating to a cryptocurrency trading fund;
- to stop an alleged ongoing fraudulent offering by an investment adviser;
- to freeze assets of an offshore fund and two related individuals;
- to freeze assets of an investment professional and two investment firms engaged in an alleged “cherry-picking” scheme; and
- to freeze assets of a trader who allegedly used social media to spread information about a defunct company while secretly profiting by selling his own holdings of the company’s stock.
Achieving Success in Litigation
- Investment adviser World Tree Financial and co-owners Wesley Kyle Perkins and Priscilla Perkins were found liable for a fraudulent cherry-picking scheme and related misrepresentations.
- Investment adviser Richard Duncan was found liable for violating the anti-fraud provisions of the Investment Advisers Act for soliciting his clients’ investments in an advance-fee scam.
- Final judgments were entered against investment adviser Westport Capital Markets and its owner, Chris McClure, ordering disgorgement and related interest of more than $820,000, and civil penalties of $500,000 against Westport and $200,000 against McClure. The final judgments follow a March 2020 jury verdict, as well as a prior grant of partial summary judgment, both in the SEC’s favor.
Rewarding and Protecting Whistleblowers
- Gave the highest awards in the program’s history, including a $114 million award to a whistleblower whose information and assistance led to the successful enforcement of an SEC action and related actions by another agency; and a $110 million award to another whistleblower who provided significant independent analysis that substantially advanced both the SEC’s investigation and another agency’s related investigation.
- Charged a broker-dealer with violating a whistleblower protection rule that prohibits taking any action to impede an individual from communicating directly with the SEC about a possible securities law violation.
- Charged a registered investment adviser with allegedly violating whistleblower protection laws by including language in termination and separation agreements that impeded individuals from coming forward to the SEC and by retaliating against a known whistleblower, along with charging that entity and others with running a Ponzi-like scheme that raised more than $1.7 billion from more than 17,000 retail investors.