On November 14, 2023, the SEC announced its enforcement results for Fiscal Year 2023 (ending on September 30, 2023). During this period, the SEC filed 784 enforcement actions, obtained orders for nearly $5 billion in financial remedies, and distributed nearly $1 billion to harmed investors.
https://www.sec.gov/news/press-release/2023-234
These 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.
Salus GRC Takeaways:
Many of these enforcement actions are of particular interest to investment advisers. Based on the SEC’s EXAMS priorities released last month (https://www.salusgrc.com/post/sec-releases-2024-exam-priorities), we believe that these enforcement actions are consistent with the priorities and expect that the SEC will continue to address key risk areas in which it brought enforcement actions from both an examination and enforcement perspective. Representative enforcement actions included the following areas of focus:
Marketing Rule:
- The SEC charged nine investment advisers and assessed combined penalties of $850,000 for advertising hypothetical performance to mass audiences on the advisers’ websites without having the required policies and procedures.
Whistleblower Rights:
- The SEC settled charges against D.E. Shaw & Co. for raising impediments to whistleblowing. D. E. Shaw agreed to pay a $10 million civil penalty.
- 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 SEC.
Rewarding Meaningful Cooperation:
- The SEC settled charges against Perella Weinberg regarding the improper recordkeeping of electronic communications. Perella Weinberg self-reported its conduct and agreed to pay a civil penalty of $2.5 million. However, other firms that were charged in this area but had not self-reported their violations paid substantially higher civil penalties.
Cryptocurrencies:
- The Division of Enforcement 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.
Cybersecurity:
- 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 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.
ESG:
- The SEC charged a Deutsche Bank subsidiary for making materially misleading statements about its controls concerning ESG products. The firm agreed to pay a $19 million civil penalty.
- Further, the SEC charged 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. GSAM agreed to pay a $4 million penalty.
Investment Professionals:
- The SEC charged 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.
Contact Salus GRC!
Please contact Salus GRC with your questions and concerns related to these SEC enforcement results, an active or potential SEC exam or the current governance, risk and compliance landscape for investment advisers, private fund managers or other market participants.