SEC imposed over $5 Billion in financial fines and more than $600 million in whistleblower rewards

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The Securities and Exchange Commission filed 784 total enforcement actions in fiscal year 2023, a 3 percent increase over fiscal year 2022, including 501 original, or “stand-alone,” enforcement actions, an 8 percent increase over the prior fiscal year. The SEC also filed 162 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders and 121 actions against issuers who were allegedly delinquent in making required filings with the SEC.

The stand-alone enforcement actions spanned the securities industry, from billion-dollar frauds to emerging investor threats involving crypto asset securities and cybersecurity, and charged violations by diverse market participants, from public companies and investment firms to gatekeepers and social media influencers. The SEC also brought numerous enforcement actions addressing conduct that undermines oversight of the securities industry, including actions to protect whistleblowers and actions to enforce recordkeeping requirements and other investor protection requirements applicable to industry participants, including broker-dealers and investment firms.

“Investor protection and enhancing public trust in our markets requires that we work with a sense of urgency, using all the tools in our toolkit. As today’s results make clear, that’s precisely what the Enforcement Division did in fiscal year 2023,” said Gurbir S. Grewal, Director of the Division of Enforcement. “Whether it was by leveraging risk-based initiatives, seeking robust remedies, rewarding cooperation, protecting whistleblowers, or returning nearly a billion dollars to harmed investors, the Enforcement Division stood up for the investing public. I am extremely proud of the Division’s efforts, including those that are not directly reflected in today’s results like the many important investigations that may not result in enforcement actions or the thousand-plus ongoing investigations teams conduct each fiscal year – all of which help protect investors, hold bad actors accountable, and promote public trust.”

In fiscal year 2023, the SEC obtained orders for $4.949 billion in financial remedies. The financial remedies comprised $3.369 billion in disgorgement and prejudgment interest and $1.580 billion in civil penalties. Both the disgorgement and civil penalties ordered were the second highest amounts on record. The SEC also obtained orders barring 133 individuals from serving as officers and directors of public companies, the highest number of officer and director bars obtained in a decade.

In addition, the SEC distributed $930 million to harmed investors in fiscal year 2023, marking the second consecutive year with more than $900 million in distributions.

Fiscal year 2023 was a record-breaking year for the SEC’s Whistleblower Program. The SEC issued whistleblower awards totaling nearly $600 million, the most ever awarded in one year, including a record-breaking $279 million awarded to one whistleblower. The Commission received more than 18,000 whistleblower tips in fiscal year 2023, a record number and approximately 50 percent more than the then-record 12,300 whistleblower tips received in fiscal year 2022. The SEC received more than 40,000 tips, complaints, and referrals in total, a 13 percent increase over fiscal year 2022.

Using all the Enforcement Division’s Tools to Protect Investors and the Integrity of the Markets

In fiscal year 2023, the SEC’s Division of Enforcement aggressively employed all of its tools to protect investors and promote market integrity.

Monetary Relief

On the Division’s recommendations, the Commission filed settled charges imposing robust financial remedies against major companies in actions that addressed a wide range of securities law violations.

For example:

In addition, the SEC obtained judgments from federal courts ordering:

  • Danske Bank, a multinational financial services corporation, to pay a $178.6 million civil penalty to resolve charges that it misled investors about its anti-money laundering compliance program and failed to disclose risks posed by the program’s significant deficiencies; and
  • Vale S.A., a mining company and one of the largest iron ore producers in the world, to pay $55.9 million combined in a civil penalty, disgorgement, and prejudgment interest to settle charges for allegedly false and misleading disclosures about the safety of its dams prior to a collapse that killed 270 people.

Industry Shaping Initiatives

In fiscal year 2023, the Division conducted a number of initiatives to proactively investigate recurring or widespread violations in the securities industry. In addition to the ongoing initiative, addressed above, to ensure that regulated entities comply with their recordkeeping requirements, the Division’s initiatives in fiscal year 2023 included the following:

  • Marketing Rule

As a result of an initiative investigating noncompliance with the Marketing Rule, the Commission charged nine investment advisers. The SEC’s orders find that each of the charged firms advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures. Each of the firms settled the charges, paying combined civil penalties of $850,000. In addition, FinTech investment adviser Titan Global Capital Management USA LLC agreed to pay more than $1 million combined in a civil penalty, disgorgement, and prejudgment interest to settle charges that it violated the marketing rule.

  • Failures by Insiders and Major Shareholders to Timely File Required SEC Forms

The SEC filed eleven actions as part of an initiative focused on ownership reports that company insiders are required to file regarding their holdings of company stock. The SEC charged six officers, directors, and major shareholders of public companies for failing to file timely reports. The SEC also charged five publicly traded companies for contributing to the filing failures by insiders or failing to report their insiders’ filing delinquencies. The parties agreed to pay more than $1.5 million combined in civil penalties to settle the cases.

  • Regulation A

The SEC charged ten microcap companies with offering and selling securities that allegedly did not comply with Regulation A. According to the SEC’s orders, the companies obtained qualification from the SEC for their securities offerings using Regulation A—which provides companies a limited exemption from registration under the Securities Act as long as they meet specific requirements—but subsequently made one or more significant changes to their offerings that made the offerings no longer meet the requirements of the exemption, such as increasing the number of shares offered, increasing or decreasing the price of shares offered, or engaging in prohibited delayed offerings. The firms agreed to pay a combined $390,000 in civil penalties to settle the cases.

Addressing Misconduct that Prevents Effective Oversight of the Securities Industry

The SEC brought a series of actions targeting misconduct that undermined its ability to effectively regulate the securities industry, including charging regulated entities with violating their recordkeeping requirements (such as the Off-channel Communications Initiative discussed above) and their reporting obligations to regulators. For example:

  • The SEC charged Goldman Sachs & Co. LLC for failing to provide complete and accurate securities trading information, known as blue sheet data, to the SEC. According to the SEC’s order, Goldman made more than 22,000 deficient blue sheet submissions to the SEC over approximately ten years. The submissions contained missing or inaccurate trade data for at least 163 million transactions. Goldman admitted the findings in the SEC’s order and paid a $6 million civil penalty to resolve the SEC’s charges;
  • The SEC charged broker-dealer Citadel Securities LLC with violating a provision of Regulation SHO that requires broker-dealers to mark sale orders as long, short, or short exempt. Regulators routinely use these records to police prohibited short selling activity. According to the SEC’s order, Citadel Securities incorrectly marked an estimated millions of orders for a five-year period, inaccurately denoting certain short sales as long sales and vice versa, and provided the inaccurate data to regulators, including the SEC. Citadel paid a $7 million civil penalty to resolve the charges and consented to a set of undertakings, including a written certification that the coding error had been remediated and a review of the firm’s computer programming and coding logic involved in processing relevant transactions; and
  • The SEC charged Merrill Lynch and its parent company, BAC North America Holding Co., with failing to file hundreds of Suspicious Activity Reports from 2009 to late 2019. Merrill Lynch paid a $6 million penalty to settle the SEC charges.

In addition, the SEC took forceful action to protect whistleblowers’ rights and ability to report potential securities laws violations to the SEC.

  • The SEC settled charges against registered investment adviser D. E. Shaw & Co., L.P. for raising impediments to whistleblowing by requiring employees to sign agreements prohibiting the disclosure of confidential corporate information to third parties, without an exception for potential SEC whistleblowers, and by requiring departing employees to sign releases affirming that they had not filed any complaints with any government agency for the employees to receive deferred compensation. D. E. Shaw agreed to pay a $10 million civil penalty to settle the SEC’s charges, the largest penalty on record for a standalone violation of the Dodd-Frank whistleblower protection rule; and
  • The SEC charged firms for using employment and separation agreements that violated the whistleblower protection rule by requiring certain employees to waive their rights to financial whistleblower awards or requiring departing former employees to provide notice to the company if they received a request for information from the Commission’s staff.

Rewarding Meaningful Cooperation

In fiscal year 2023, the SEC consistently rewarded meaningful cooperation to efficiently promote compliance across the securities industry. Rewarding parties that cooperate encourages other firms to proactively self-police, self-report, and remediate potential securities law violations and to provide meaningful cooperation with the Division’s investigations. The Commission rewarded cooperation in cases against public issuers, private companies, and advisory firms, in matters involving a range of violations, such as material misstatements, recordkeeping violations, undisclosed perquisites, and violations of whistleblower protection rules. For example:

  • The SEC settled charges against telecommunications company GTT Communications, Inc. for failing to disclose material information about unsupported adjustments the company made in several Commission filings that increased GTT’s reported operating income by at least 15 percent in three quarters. The SEC’s order credited GTT with promptly self-reporting, undertaking affirmative remedial measures, and providing substantial cooperation to the SEC, and the agency did not order a civil penalty against GTT;
  • The SEC settled charges against broker-dealer Perella Weinberg as part of the Division’s initiative investigating violations of the recordkeeping provisions of the federal securities laws. Perella Weinberg self-reported the conduct and agreed to pay a civil penalty of $2.5 million to settle the charges. Other firms that were charged as part of the initiative but had not self-reported agreed to pay substantially higher civil penalties to settle the charges.
  • The Commission settled charges against View, Inc., a publicly traded manufacturer of “smart” windows, for failing to disclose $28 million in warranty-related liabilities. The Commission did not impose civil penalties against View because the company self-reported the conduct to the SEC, promptly undertook remedial measures, and cooperated with the staff’s investigation. According to the settled order, after self-reporting the conduct, View provided assistance to Division staff by, among other things, providing detailed financial analyses and explanations and summaries of factual issues; proactively identifying key documents and witnesses; and following up on several requests from the staff without requiring subpoenas.

Accountability and Remedial Measures Against Individuals

Individual accountability remains a pillar of the SEC’s enforcement program. In fiscal year 2023, approximately two-thirds of the SEC’s cases involved charges against one or more individuals. In addition, to protect investors from future violations, the SEC obtained 133 orders barring individuals from serving as officers and directors of public companies, the highest number in a decade.

Cases that resulted in officer and director bars or other industry bars—among other remedies—against individuals included:

  • A former Wells Fargo executive was barred from serving as an officer or director of a public company as part of a settlement of fraud charges for misleading investors about the success of Wells Fargo’s core business. The former executive also agreed to pay a $3 million civil penalty and more than $1.9 million in disgorgement and prejudgment interest;
  • The former CEO of McDonald’s was barred from serving as an officer or director for five years to settle fraud charges for making false and misleading statements about the circumstances leading to his termination from McDonald’s. The former CEO also agreed to pay a $400,000 civil penalty; and
  • Telecommunications company Pareteum Corp.’s former controller was barred from serving as an officer or director and denied the privilege of appearing or practicing before the Commission as an accountant as part of a settlement in a matter relating to his role in an allegedly fraudulent revenue recognition scheme.

Holding Fraudsters Accountable for Preying on Retail Investors

Protecting retail investors continues to be a focus for the Division.

Affinity Frauds and Ponzi Schemes

Based on investigations by Division staff, in fiscal year 2023, the SEC brought several actions against alleged fraudsters targeting various groups in affinity frauds and Ponzi schemes, including schemes targeting the Tongan American community, elderly church members, Spanish-speaking communities, law enforcement and first responders, and the Orthodox Jewish community.

Asset Freezes

The SEC’s ability to obtain meaningful financial remedies and to return money to harmed investors may turn on securing an asset freeze at an early stage. Based on the Division’s investigations, the SEC sought and obtained emergency relief freezing defendants’ assets in numerous litigated cases, including:

  • Against a Florida resident for allegedly operating a more than $100 million Ponzi scheme targeting the Haitian American community; and
  • Against Miami-based investment adviser BKCoin Management LLC in connection with an alleged $100 million crypto asset fraud scheme.

Public Company Misstatements

Accurate disclosures by public companies are foundational to the securities markets. In fiscal year 2023, the Division’s investigations resulted in charges against public companies involving a wide range of alleged misconduct, such as fraud, accounting misstatements, and deficient controls. Illustrative cases include:

  • Charges against Fluor Corporation, a global construction company, for accounting errors that caused it to materially overstate its earnings. Fluor agreed to pay a $14.5 million civil penalty to settle the charges;
  • Charges against Newell Brands Inc., a consumer products company, for misleading investors about its core sales growth. Newell agreed to pay a $12.5 million civil penalty to settle the charges; and
  • Charges against Electric vehicle companies XL Fleet, Canoo Inc., Kandi Technologies Group, Inc., and Hyzon Motors, Inc. for making materially misleading statements regarding revenue projections, sales, or product launches.

Gatekeepers

Gatekeepers, such as accountants, auditors, and other professionals who share responsibility for protecting investors, play critical roles in the capital markets as the first lines of defense against misconduct. Ensuring that they comply with their obligations is a critical part of the Division’s mission.

In fiscal year 2023, the Division’s investigations resulted in numerous charges against gatekeepers, including:

  • Charges against audit firm Marcum LLP for systemic quality control failures and violations of audit standards in connection with its audit work for hundreds of special purpose acquisition company (SPAC) clients. To settle the charges, Marcum agreed to pay a $10 million civil penalty and to comply with various undertakings, including retaining an independent consultant to review and evaluate its audit, review, and quality control policies and procedures and to abide by certain restrictions on accepting new audit clients;
  • Litigated charges against accounting firm Prager Metis for allegedly violating auditor independence rules and aiding and abetting its clients’ violations of federal securities laws; and
  • Charges against UK-based audit firm Crowe U.K. LLP, its CEO, and a senior audit partner in connection with the firm’s allegedly deficient audit of a SPAC merger target. To settle the charges, Crowe U.K., its CEO, and its senior auditor agreed to pay civil penalties of $750,000, $25,000, and $10,000, respectively. Crowe U.K. was also ordered to comply with various undertakings related to the firm’s acceptance of new clients. In addition, the CEO and senior auditor were denied the privilege of appearing or practicing before the SEC as accountants.

Market Abuse

In fiscal year 2023, the SEC brought enforcement cases addressing a variety of abusive trading practices, such as insider trading, front-running, and market manipulation. For example, the Commission charged:

Crypto

Fiscal year 2023 was another highly productive and impactful year for the SEC’s enforcement efforts relating to crypto asset securities. In fiscal year 2023, the Division recommended enforcement actions addressing a range of alleged misconduct in the crypto asset securities space, including billion-dollar crypto fraud schemes, unregistered crypto asset offerings, platforms, and intermediaries, and illegal celebrity touting.

Fraud

In fiscal year 2023, the Division’s investigations resulted in litigated charges alleging massive crypto frauds, including charges against Terraform Labs and its founder Do Kwon; Richard Heart and three entities that he controls, Hex, PulseChain, and PulseX; FTX CEO Samuel Bankman-Fried, and other FTX executives.

Unregistered offerings

Noncompliance with the registration provisions of the federal securities laws deprives investors of the required disclosures necessary to make informed investment decisions.

The Division’s investigations led to charges against numerous firms for allegedly offering unregistered securities through crypto asset lending and/or staking programs, including Genesis/Gemini, Celsius, Kraken, and Nexo. Kraken and Nexo agreed to cease their unregistered offerings. Kraken also agreed to pay $30 million in combined civil penalty, disgorgement, and prejudgment interest, and Nexo agreed to pay a $22.5 million civil penalty.

In addition, in fiscal year 2023, the SEC filed its first actions against issuers of non-fungible tokens (NFTs). Based on the Division’s investigations and recommendations, the SEC charged Impact Theory LLC and Stoner Cats 2 LLC for conducting illegal unregistered offerings of crypto asset securities in the form of purported NFTs.

Unregistered exchanges and other intermediaries

Crypto intermediaries—whether they call themselves centralized or decentralized—often provide a suite of services that, in the rest of the securities markets, typically are separated from each other: exchange functions, broker-dealer functions, and custodial and clearing functions. The commingling of the various functions within crypto intermediaries creates inherent conflicts of interest and risks for investors.

The SEC brought a series of enforcement actions in fiscal year 2023 addressing the alleged rampant noncompliance in the crypto asset intermediary space, including actions against Beaxy, Bittrex, Binance, and Coinbase.

Touting

The SEC acted in several cases where “influencers” allegedly unlawfully touted crypto asset securities without disclosing that they were compensated to do so, depriving investors of required information indicating whether the celebrities’ promotion of the securities was biased. For example, NBA Hall of Famer Paul Pierce and media personality Kim Kardashian agreed to pay civil penalties, disgorgement, and prejudgment interest totaling $1.35 million and $1.26 million, respectively, to settle charges that they touted crypto asset securities without disclosing the payments they received for the promotion. The SEC also charged celebrities Lindsay Lohan, Jake Paul, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), Aliaune Thiam (Akon), DeAndre Cortez Way (Soulja Boy), and Austin Mahone for allegedly illegally touting crypto asset securities without disclosing that they were compensated for doing so. All but Cortez Way and Mahone settled the charges.

Cybersecurity

SEC registrants, such as public companies, broker-dealers, and investment advisers, possess an incredible amount of electronic data about, among other things, entities and individuals, including personal identifying information, sensitive account information, and other information of value to bad actors. The Division has been vigilant in ensuring that market participants reasonably disclose material cybersecurity risks and incidents. In fiscal year 2023:

  • The SEC charged broker-dealer Virtu for allegedly making materially false and misleading statements and omissions regarding information barriers to prevent the misuse of sensitive customer information. The litigation is pending; and
  • The SEC settled charges against software company Blackbaud Inc. for making misleading disclosures about a 2020 ransomware attack that impacted more than 13,000 customers. Blackbaud agreed to pay a $3 million civil penalty to settle the charges.

Environmental, Social, and Governance (ESG)-Related Cases

ESG issues are increasingly important to investors, resulting in a growth of ESG-branded investment products and an increased focus on ESG by public companies. The SEC brought several enforcement actions addressing ESG issues in fiscal year 2023, in addition to the McDonald’s and whistleblower actions discussed above, including:

  • Charges against a Deutsche Bank subsidiary for making materially misleading statements about its controls concerning ESG products. The firm marketed itself as a leader in ESG that adhered to specific policies for integrating ESG considerations into its investments, but it allegedly failed to adopt and implement policies and procedures reasonably designed to ensure that its public statements about the ESG integrated products were accurate. The firm agreed to pay a $19 million civil penalty to settle the charges;
  • Charges against Goldman Sachs Asset Management, L.P. for policies and procedures failures involving two mutual funds and a separately managed account strategy marketed as ESG investments. To settle the charges, GSAM agreed to pay a $4 million penalty; and
  • Charges against video game developer Activision Blizzard Inc. for failing to maintain disclosure controls and procedures to collect and analyze employee complaints of workplace misconduct. To settle the charges, as well as charges for violating the SEC’s whistleblower protection rule, Activision Blizzard agreed to pay a $35 million civil penalty.

Public Finance Abuse

The SEC brought several important enforcement actions in the public finance sector in fiscal year 2023, including:

  • Charges against public company Exelon Corporation, its subsidiary, and the subsidiary’s former CEO for fraud in connection with a multi-year political corruption scheme;
  • Charges against three broker–dealers for failing to obtain required disclosures for investors when selling new issue municipal bonds; and
  • A case charging an auditor of a municipal issuer for fraud in connection with its audit of financial statements for a Louisiana-based school board.

Investment Professionals and Service Providers

The Division prioritizes identifying misconduct by investment professionals, who occupy positions of tremendous importance to those who entrust them with their savings. Actions against investment professionals in fiscal year 2023 included:

  • Charges against private equity firm Prime Group Holdings LLC for failing to adequately disclose millions of dollars of real estate brokerage fees that were paid to a firm that was owned by its CEO. Prime Group agreed to pay a $6.5 million civil penalty and more than $14 million in disgorgement and prejudgment interest to settle the charges;
  • Charges against investment adviser AssetMark Inc. related to undisclosed conflicts of interest involving a cash sweep program operated by its affiliated custodian and its receipt of millions of dollars in revenue sharing payments from third-party custodians. AssetMark agreed to pay a civil penalty of $9.5 million and disgorgement and prejudgment interest of more than $8.5 million to settle the charges; and
  • Charges against investment adviser ETF Managers Group LLC and its CEO for misleading the trustees of a fund they managed to obtain $20 million in rescue financing to avoid a possible bankruptcy. To settle the charges, the firm and its parent company were ordered to pay a $4 million civil penalty, and the CEO agreed to pay a $400,000 civil penalty and was barred from association with an investment adviser, among other remedial measures.

Foreign Corrupt Practices Act (FCPA)

The SEC remains committed to enforcing the FCPA against issuers of securities traded in the U.S. that engage in bribery and other corrupt practices abroad. In addition to the ABB Ltd. action referenced above, the SEC’s FCPA actions in fiscal year 2023 addressed corrupt practices around the world, including:

  • Charges against Amsterdam-based medical supplier Koninklijke Philips N.V. arising out of allegedly improper conduct by its subsidiaries in China, including conduct to influence hospital officials to draft tenders to favor Philips’s products. Philips agreed to pay more than $62 million in a combined civil penalty, disgorgement, and prejudgment interest to settle the charges; and
  • Charges against North Carolina-based global chemicals company Albemarle Corporation for, among other violations, allegedly using agents that paid bribes to obtain contracts in Vietnam, India, and Indonesia. To settle the charges, Albemarle agreed to pay more than $100 million in disgorgement and prejudgment interest.

Trial and Litigation Highlights

Finally, while the majority of the Commission’s enforcement actions are filed as settled matters, the Division routinely litigates and tries matters where necessary to protect investors and the markets. More than 40 percent of the standalone matters the Commission brought in fiscal year 2023 were filed in whole or in part as litigated actions, against both entities and individuals. The SEC had a number of significant trial, administrative, and motion practice wins in fiscal year 2023, including:

JEFFREY NEWMAN AND HIS FIRM REPRESENT WHISTLEBLOWERS UNDER THE SEC AND CFTC WHISTLEBLOWER PROGRAMS. HIS FOCUS IS ON VIOLATIONS OF SECURITIES REGULATIONS AND ISSUES RELATING TO CYBERATTACKS AND THE LAW REQUIRING REPORTING AND REMEDIATION. HE CAN BE REACHED AT JEFF@JEFFNEWMANLAW.COM OR AT 617-823-3217. HIS FIRM’S WEBSITE IS WWW.JEFFNEWMANLAW.COM