SEC Settlement Trends: 1H12 Update

Wed Jun 27 16:24:38 EDT 2012
By Dr. James A. Overdahl with former NERA economist Dr. Elaine Buckberg

The latest report from NERA's ongoing analysis of trends in Securities and Exchange Commission (SEC) enforcement action settlements finds that the SEC's promise to hold more individuals accountable has borne out in the first half of 2012, with the SEC settling 286 cases with individuals. 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).

The authors note that, 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 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 authors also find that the pace of settlements with companies involving Ponzi schemes is up 56% in 1H12, 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.

The report's findings are informed by NERA's proprietary database of settlements in SEC enforcement actions, which is based on litigation releases and administrative proceeding documents.