NERA Releases 2011 Fiscal Year-End SEC Settlement Trends Report: Total Number of Settlements Remain at High Levels; Median Settlement Values for Companies and Individuals Soar

23 January 2012

New York -- The Securities and Exchange Commission (SEC) reached a total of 682 settlements in fiscal year 2011 (FY11), almost unchanged from 680 settlements in fiscal year 2010, according to NERA Economic Consulting’s biannual report SEC Settlement Trends: 2H11, released today.

Settlement Allegation Trends

While the total number of FY11 settlements remained relatively constant over the previous fiscal year, there has been a substantial shift in the composition of allegations. Since FY09, Trends authors have observed an increase in settlements with financial services firms for misrepresentations to customers or misappropriation of funds, and an offsetting decrease in settlements relating to public company misstatements.

The three-year rise in the percentage of SEC settlements involving misrepresentations or misappropriation by financial services firms suggests a shift in the SEC’s enforcement focus since the financial crisis began and the Madoff fraud was revealed. These types of settlements accounted for 41.6% of all SEC settlements in FY11, as compared to the FY03-08 average of 23.7%. Illegal offering and market manipulation cases were the second most common in FY11, representing 27.3% of settlements, the highest level since 2005. Public company misstatement settlements continued to decline for a fourth consecutive year, to 10.4% of total settlements, the lowest level since Sarbanes-Oxley ("SOX") was passed.

Relative to the previous fiscal year, the SEC reached 24% more settlements with companies in FY11 and 7% fewer settlements with individuals. This shift in FY11 does not appear indicative of a multi-year trend, as Trends authors have observed similar fluctuations in company and individual settlements in previous years.

Trends in Settlement Values

Median settlement values with companies nearly doubled from $800,000 in FY10 to $1.47 million in FY11, near the post-SOX high of $1.5 million in FY06. Median settlement values for individuals were $175,000 in FY11, a 35% increase from the previous post-SOX high of $130,000 in FY08. Although high-value settlements with companies declined--an exception to the overall trend of increasing settlement values--high-value settlements with individuals reached post-SOX highs, when measured at the 75th and 90th percentiles. This result is consistent with recent statements by SEC officials emphasizing individual accountability for actions taken by individuals responsible for corporate decisions.

"The data from 2011 show the impact of settlements for conduct occurring during the financial crisis," said NERA Vice President and Trends co-author Dr. James A. Overdahl. "Given recent statements made by senior SEC officials emphasizing individual accountability, we may see more individual settlements arising from these cases. In addition, the recent court decision failing to approve the SEC's proposed settlement with Citigroup Global Markets and the broader implementation of Dodd-Frank in the year ahead may have far-reaching, but at this point unpredictable, implications for settlement trends in the months and years ahead."

Ten Largest FY 2011 Settlements

 

 Settling Defendant  Total
   
 Milowe Allen Brost & Gary Allen Sorenson  $310 million
 J.P. Morgan Securities LLC  $154 million
 U.S. Pension Trust Corp. & U.S. College Trust Corp.  $113 million
 Morgan Asset Management & Morgan Keegan & Co. Inc.  $100 million
 Jacob “Kobi” Alexander, co-founder, Comverse Tech.  $54 million
 J.P. Morgan Securities LLC  $51 million
 Johnson & Johnson  $49 million
 UBS Financial Services Inc.  $47 million
 Alcatel-Lucent, S.A.  $45 million
 Joseph P. Nacchio, former CEO, Qwest Communications International, Inc.      $45 million
   

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: 2H11, and find historical SEC settlements data and previous SEC settlements trends reports at www.SecuritiesLitigationTrends.com.
 
This report is authored by NERA Senior Consultant Dr. Max Gulker, Senior Vice President Dr. Elaine Buckberg, and Vice President Dr. James A. Overdahl.

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 over 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 25 offices across North America, Europe, and Asia Pacific.