Just after its chair announced plans to resign, the Securities and Exchange Commission (SEC) announced it collected a record $8.2 billion in “financial remedies” from enforcement penalties. Despite the high amount, the report indicates multiple challenges for the commission. Most funds will likely never be paid, and the commission’s enforcement activity dropped significantly.
About half (56%) of the total remedies came from one case: the SEC’s jury trial win against Terraform Labs and its founder Do Kwon in June. The case involved crypto asset securities fraud that led to “massive investor losses when the scheme was unraveled,” according to the commission’s statement after the unanimous verdict. Though the SEC settled for $4.5 billion, recovering the funds from Terraform is unlikely due to the company’s bankruptcy.
While the remedy amount hit record highs, enforcement activity dropped 26% compared to the prior year. Most reductions occurred in actions against issuers for delinquent filings (a 51% decrease year-over-year) and follow-on administrative proceedings (a 43% year-over-year decline). Standalone actions were the most common case type filed and saw the smallest drop, declining by only 14%.
The drop in SEC enforcement may be a cause for concern among CFOs. While the commission’s enforcement levels have fallen, financial fraud has not, and with future leadership positions vacant and an administration seeking to reduce the power of regulatory agencies, the SEC’s current role in maintaining the status quo of the securities market may soon be subject to change.
