WASHINGTON — The Securities and Exchange Commission’s Public Finance Abuse Unit brought two fewer actions during fiscal year 2018 than it did the previous year, a tally that one lawyer said is indicative of the end of “broken windows” enforcement at the SEC.
The Public Finance Abuse Unit, helmed by LeeAnn Gaunt, brought 15 stand-alone enforcement actions in fiscal year 2018, according to the SEC Division of Enforcement’s annual report released Friday. That was a drop from the 17 actions brought in fiscal 2017, and included seven actions filed in federal district court and eight brought as administrative proceedings before the commission’s administrative law judges.
The unit also brought three follow-on administrative proceedings to bring the total number of actions for the fiscal year up to 18. Follow-on proceedings occur when the SEC seeks industry bars against wrongdoers based on either previous SEC action or the actions of other regulators or law enforcement.
Paul Maco, a partner at Bracewell and former head of the SEC’s muni office, said the report to him suggested “the end of ‘broken-windows enforcement’ and a continued focus on individuals and individual officials.”
The broken windows philosophy, adopted during the 2013-2017 chairmanship of Mary Jo White, holds that strict enforcement of minor infractions will deter bad actors more effectively than focusing primarily on the more serious offenses. There have been indications that the SEC has decided to move away from that philosophy, and current Chair Jay Clayton has emphasized protection of “Main Street” investors as a guiding principle.
“As this report demonstrates, the division’s approach to enforcement is multifaceted and outcomes-oriented with the interests of our Main Street investors front of mind,” Clayton said Friday. “The Enforcement Division has been and continues to be extremely successful in its efforts to deter bad conduct and effectively remedy harms to investors.”
The SEC’s two top cops also stressed the focus over the past year in statements Friday.
“As stewards of the SEC’s Division of Enforcement, our goal is to continue to protect investors, deter misconduct, punish wrongdoers and keep our markets the safest and strongest in the world,” said Stephanie Avakian, co-director of the Division of Enforcement.
“This year’s report again shows a broad range of significant enforcement actions, a thoughtful approach to remedies and relief, and the return of substantial sums to investors,” said Steven Peikin, the other co-director.
The number of total enforcement actions, however, actually rose to 821 from the 754 the previous year.
The 2018 total was below the 2016 number in both total and muni enforcement, as 2016 saw numerous settlements under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. The SEC tallied 868 enforcement actions that year.
Stand-alone enforcement actions by Gaunt’s unit represented 3% of all stand-alone SEC enforcement actions in fiscal 2018, a slight dip from the 4% of the prior year.
In total, the SEC imposed penalties and disgorgement of ill-gotten gains totaling $3.9 billion in fiscal 2018, up from $3.8 billion the previous year but down from $4.1 billion in fiscal 2016.
