Analysis

The Securities Enforcement Empirical Database (SEED) currently provides data for SEC actions initiated against public companies traded on major U.S. exchanges and their subsidiaries. We define public companies as companies with security prices that are tracked by the Center for Research in Security Prices.

 

The SEC filed 52 new enforcement actions against public companies and subsidiaries in 1H FY 2019, a 5 percent decrease from 2H FY 2018, but a 225 percent increase from 1H FY 2018. The SEC’s Share Class Selection Disclosure Initiative (Share Class Initiative) accounted for almost half (25) of the 52 actions filed against public companies and subsidiaries in 1H FY 2019.

The figure illustrates the number of SEC actions against public companies and subsidiaries in each half of fiscal years 2010 to 1H 2019

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SEED tracks the type of allegation the SEC makes in each enforcement proceeding. For the first time in the fiscal years covered by SEED, Investment Advisor/Investment Company was the most common allegation type in 1H FY 2019, accounting for more than half (52 percent) of actions filed.

The figure contains a heat map of the percentages of SEC actions against public companies and subsidiaries for each allegation type from fiscal year 2010 to fiscal year 1H 2019

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The SEC filed every public company and subsidiary action in the first half of FY 2019 as an administrative proceeding, up from 85% in the second half of FY 2018. This was the only time in any half-year tracked by SEED that all actions were filed as administrative proceedings and none were filed as civil actions.

The figure illustrates the percentages of civil actions and administrative proceedings against public companies and subsidiaries for each half of fiscal years 2010 to 1H 2019

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SEED classifies public companies and parent companies of subsidiaries by Standard Industrial Classification (SIC) code. In 1H FY 2019, public company and subsidiary actions targeted the Finance, Insurance, and Real Estate industry most frequently (67 percent of actions). More than two-thirds of actions in the Finance, Insurance, and Real Estate industry (23 of the 35) were the result of the SEC’s Share Class Initiative.

The figure contains a heat map of the percentages of SEC actions against public companies and subsidiaries for each SIC industry division from fiscal year 2010 to fiscal year 1H 2019

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In 1H FY 2019, 88 percent of settlements with public companies and subsidiaries noted some form of cooperation with the SEC. This was a record-high percentage relative to the FY 2010–FY 2018 average of 51 percent. While all of the 27 defendants involved in the Share Class Initiative cooperated with the SEC by self-reporting, the percentage of defendants not involved in the Share Class Initiative that cooperated with the SEC in 1H FY 2019 was also high at 79 percent.

The figure illustrates, for each fiscal year from 2010 to 1H 2019, the percentages of SEC actions against public companies and subsidiaries that noted: cooperation and monetary settlement; cooperation and no monetary settlement; no cooperation and monetary settlement; no cooperation and no monetary settlement

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Monetary settlements in public company and subsidiary actions totaled $742 million in 1H FY 2019, a 24 percent decrease from the half-year average over the prior three fiscal years. Of the $742 million, $75 million (10%) stemmed from Share Class Initiative settlements. The average monetary settlement decreased from $45 million in 2H FY 2018 to $15 million in 1H FY 2019, while, in 1H FY 2019, the median settlement, $3 million, was 21 percent of the average during this period, generally consistent with historical trends.

The figure illustrates the average monetary settlement and the median monetary settlement in each half year of fiscal years 2010 to 1H 2019

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