NERA Releases 2012 Fiscal Year-End SEC Settlement Trends Report; Total SEC Settlements Reach Highest Level Since 2007
New York -- Settlements with the Securities and Exchange Commission (SEC) continued their upward trajectory, reaching 714 in fiscal year 2012 (FY12), the highest number since 2007, according to NERA Economic Consulting’s biannual report SEC Settlement Trends: 2H12, released today.
This increase in total settlements represents a 6.6% increase over the 670 SEC settlements in fiscal year 2011 (FY11). The total number of settlements with individuals in FY12 reached the highest level recorded since 2005, with 537—up 14% from 473 in FY11.
FY12 Trends in Settlement Values
Median settlement values for companies declined to $1 million in FY12 from the $1.4 million observed in FY11. Consistent with the SEC’s emphasis on individual accountability, median settlement values for individuals reached a post-Sarbanes Oxley (“SOX”) high in FY12, having more than doubled since 2009 from $103,000 to $221,000.
The percentage of SEC settlements in FY12 that had an attached monetary penalty increased to 69%, above the 57% rate in FY11 and the average rate of 59.5% between 2003 and 2010. SEC settlements against companies involving a monetary payment increased to more than three-quarters of all settlements in FY12, up from 62% in FY11 and a 56% average rate from 2003 and 2010.
FY12 Settlement Allegation Trends
Settlements for several categories of allegations reached new highs in FY12. The SEC reached a record number of insider trading settlements in FY12, with 118 individuals and eight companies. These 126 settlements are almost double the total number of FY11 settlements and 21% more than the previous post-SOX record of 104 insider trading settlements in 2003. Settlements involving allegations of misrepresentation and misappropriation by financial firms also hit a post-SOX record high in FY12, with 208 total cases. For the third year in a row, the number of total settlements for allegations of Ponzi schemes reached a post-SOX record, with 92 settlements. Finally, settlements for trading violations hit a post-SOX record in FY12, almost doubling the number of settlements from the previous year to 48.
Schapiro Years – SEC Enforcement Actions
Chairman Mary Schapiro stepped down from the SEC on 14 December 2012. In addition to the FY12 data, Trends authors also compared settlement trends in SEC enforcement during the period of Chairman Schapiro’s appointment and the proceeding years since the passage of SOX.
The annual average number of SEC settlements declined from 751 in the “pre-Schapiro era” to 680 during the “Schapiro era” at the SEC. The decline was observed in settlements with both companies and individuals. However, using settlement data from the entire pre-Schapiro era obscures the fact that the Schapiro-era average of 680 settlements per year is virtually unchanged from the average of 682 settlements per year observed in the three years immediately prior to the Schapiro Chairmanship.
Notably, there was a considerable shift in the focus of enforcement actions under Chairman Schapiro compared to the previous post-SOX period. Insider trading settlements in 2012 jumped to 126, far exceeding the average 71 settlements per year observed prior to her tenure. Average annual settlements with companies on matters related to Ponzi schemes increased substantially from 47 to 79 cases during the Schapiro era. Enforcement of the FCPA under Schapiro remained relatively stable compared to the years immediately prior to her chairmanship, with an average of 18 settlements per year during her tenure versus the average of 17 between 2007-2008.
SEC monetary settlements under Chairman Schapiro rose for both companies and individuals. Median settlement values for individuals increased nearly 40% to $152,667, a result consistent with an increased focus by the SEC on individual accountability. Company settlements at the median rose from $993,542 to $1,075,000.
“During the Schapiro era, the Dodd-Frank Act gave the SEC expanded authority and expanded the range of market participants subject to SEC registration, oversight, and enforcement. The actions taken during the Schapiro era to implement Dodd-Frank will likely be an important contributor to the legacy of the Schapiro era,” said NERA Vice President Dr. James Overdahl.
SEC Settlement Trends Report Series
NERA has developed a proprietary database of settlements and judgments in SEC enforcement actions since SOX by reviewing every litigation release and administrative proceeding document published since 21 July 2002. You can download the latest report, SEC Settlement Trends: 2H12, and find historical SEC settlements data and previous SEC settlements trends reports at http://www.nera.com/67_7974.htm.
This report is authored by NERA Senior Vice President Dr. Elaine Buckberg, Vice President Dr. James A. Overdahl, and Senior Consultant Jorge Baez.
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on business and legal issues involving competition, regulation, public policy, strategy, finance, and litigation.
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