SEC Settlement Trends: 2H11

Mon Jan 23 15:24:38 EST 2012
By Dr. James A. Overdahl et al.

The latest report from NERA's ongoing analysis of trends in Securities and Exchange Commission (SEC) enforcement action settlements finds that the SEC reached a total of 682 settlements in fiscal year 2011 (FY11), almost unchanged from 680 settlements in fiscal year 2010. However, while the total number of FY11 settlements remained relatively constant, 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 authors note that 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 was passed.

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.