The Securities and Exchange Commission initiated 82 cases against investment advisors and firms in fiscal 2017, down from 98 the previous year.
Total monetary relief ordered in 2017 also declined some 7 percent to $3.78 billion in fiscal 2017, down from $4 billion last year.
Bars and suspensions from the industry decreased as well, from 650 in 2016 to 625 in 2017.
The SEC did, however, distribute a record $1.21 billion to harmed investors in 2017, which included funds collected over the past two years.
The co-director of the SEC’s Enforcement Division, Stephanie Avakian, said the enforcement numbers do not accurately portray the full story, since “the bulk of the difference is attributable to 84 actions brought in 2016 as part of the commission’s Municipalities Continuing Disclosure Cooperator (MCDC) Initiative.” The initiative concluded last year.
While trumpeting its focus on retail investors and individual accountability for violations, the SEC Division of Enforcement continues to take “a broken window” approach to enforcement, focusing on firms and individuals where wrongdoing becomes obvious, rather than taking a proactive approach.
In its focus to protect Main Street investors, “the commission has recently brought cases against Wall Street firms for a wide variety of misconduct, including failing to ensure that retail clients understood the risks of complex financial products; overcharging millions in advisory fees; and putting investors in high-fee mutual fund share classes, when identical lower-cost shares were available,” Avakian said.
The number of exams the SEC conducts at advisor firms has continued to inch up—from 11 percent in 2016 to 15 percent this year, which exceeded the SEC’s stated goal of 13 percent for 2017. There are about 12,500 advisors registered with the SEC.
At that rate, advisors can expect to see SEC examiners at the door about once every 6.7 years.
That gives one past SEC chairman pause. Former SEC Chairman Mary Jo White told securities attorneys at the Practising Law Institute securities conference earlier this month that the agency’s lack of regular investor inspections is “a disaster waiting to happen.” The former top securities cop urged the agency to pick up the pace.
“Until that percentage of examinations gets to approach 50 percent a year, it’s a real problem that keeps me up at night,” White added. The Financial Institutions Regulatory Authority (Finra) inspects 50 percent of broker-dealers annually, said White, who returned to her former firm, Debevoise & Plimpton LLP, as senior chair after leaving the SEC late last year.
White is still an advocate of using third-party examiners to tackle the lack of advisor exams. White said that under her tenure, the SEC had even drafted a proposal and had chosen the organization to conduct third-party advisor exams. She declined to name the organization the SEC had selected. Current SEC Chairman Jay Clayton has rebuffed the idea.