NERA Economic Consulting Releases Biannual SEC Trends Report: SEC Settlements with Individuals Soar; Settlement Values for Individuals Increase
27 June 2012
New York -- The US Securities and Exchange Commission (SEC) promise to hold more individuals accountable has borne out in the first half of 2012, with the SEC settling 286 cases with individuals, according to NERA Economic Consulting’s biannual report, SEC Settlement Trends: 1H12 Update, released today. This pace puts the agency on track for 572 settlements with individuals in fiscal year 2012 (FY12), a 20% jump over fiscal year 2011 (FY11).
While total SEC settlements have also increased for the first half of 2012, this increase is entirely explained by the rise in settlements with individuals. The SEC settled with 379 defendants in 1H12, putting it on pace for 758 total settlements for FY12 -- a 13% increase over fiscal year 2011 that would constitute the most annual SEC settlements since 2005.
Allegations of insider trading are largely driving the increase in individual SEC settlements, with the Commission on pace for 120 insider trading settlements in FY12, after just 63 in FY11. In addition, the SEC increased its settlement activity with individuals in matters relating to Ponzi schemes and misstatements by public companies.
The pace of settlements with companies involving Ponzi schemes is up 56% in 1H12, Settlements involving companies have been driven by an increase in cases involving Ponzi schemes, with a projected increase from 27 such cases in FY11 to 42 in FY12. However, this increase was more than offset by decreases in settlement activity relating to misrepresentations to customers and misappropriation of funds by financial services firms, FCPA violations, and illegal securities offerings and market manipulation. Overall, settlements with companies are projected to decline slightly from 196 in FY11 to 186 in FY12.
Settlement Value Trends
Median settlement values for individuals continued a three-year upward trend at $190,000 in 1H12, while the median value of settlements with companies declined from a record $1.5 million in FY11 to $0.8 million in 1H12, which is in line with historical levels. Average settlements for companies generally rose in most allegation categories, with the exception of Ponzi schemes, which decreased from $4.8 million in FY11 to $1.1 million in FY12. The average value of company settlements for FCPA violations rose sharply from $11.9 million in FY11 to $20.8 million in 1H12.
More than one-third of SEC settlements in the first half of 2012 carry zero monetary penalty. The percentage of non-zero settlements with companies rose to 66.7%, up from 61.7% in FY11, and compared to an average of 56% over FY03-10.
"The JOBS Act, passed in April, could potentially reduce the scope of the SEC's enforcement activities related to unregistered offerings by exempting some small issuers from public reporting and registration requirements," said Dr. James Overdahl, NERA Vice President and SEC Settlement Trends report co-author. "Over the past three years, settlements of SEC actions related to alleged violations of the rules governing offerings has accounted for approximately 15% of all SEC settlements. Some subset of these illegal offerings may not have been regarded as illegal had the JOBS Act been in place at the time. Only after the rules to implement the JOBS Act are complete can we estimate its potential impact on future SEC enforcement activities and settlements."
Ten Largest Settlements in Fiscal Year 2012 to Date
| Settling Defendant | Total ($mil) |
| Citigroup Global Markets Inc. | $285.00 |
| Raj Rajaratnam, Galleon Management, LP | $92.81 |
| Magyar Telekom | $90.80 |
| George David Gordon, attorney | $50.51 |
| Wachovia Bank N.A. | $46.08 |
| Pentagon Capital Management | $42.05 |
| GE Funding Capital Market Services | $24.90 |
| MAAA Trust | $24.75 |
| Aon Corporation | $14.55 |
| Joseph F. Skowron III, Portfolio Manager, FrontPoint Partners, LLC | $13.37 |
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: 1H12, and find historical SEC settlements data and previous SEC settlements trends reports at www.SecuritiesLitigationTrends.com.
This report is authored by NERA Vice President Dr. James A. Overdahl and Senior Vice President Dr. Elaine Buckberg.
About NERA
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 issues arising from competition, regulation, public policy, strategy, finance, and litigation.
NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 20 offices across North America, Europe, and Asia Pacific.
