The Securities and Exchange Commission’s enforcement strategy to protect retail investors resulted in the return of a record $1.07 billion to harmed investors in 2017, SEC officials said Tuesday.
In fiscal 2017, the SEC brought 754 enforcement actions and obtained $3.8 billion in penalties and disgorgement, while returning a record $1.07 billion to harmed investors and awarding nearly $50 million in payments to whistleblowers from a diverse mix of enforcement cases, Division of Enforcement Co-Director Stephanie Avakian told members of the Financial Services Committee’s Subcomittee on Capital Markets, Securities and Investment. The subcommittee has oversight over SEC enforcement.
Avakian and her co-director, Steve Peiken, who also testified, were appointed by SEC Chairman Jay Clayton to head up the SEC’s Enforcement Division in June 2017.
“Chairman Clayton charged us to root out fraud, market manipulation and other violations of the federal securities laws with conviction and energy. The division has taken that charge to heart,” Avakian said. “The staff in our home and regional offices—under the leadership of former prosecutors and other dedicated public servants—works each day to protect our capital markets and to punish wrongdoers.”
While the division’s responsibilities include policing of a broad landscape, at a high-level, SEC enforcement focused on the interests of Main Street investors, Avakian said.
“Retail investors depend on fair, orderly and efficient markets to build savings to buy homes, pay for college or plan for retirement, among other things. They are not only often the most prevalent participants in our markets, but, in many cases, also the most vulnerable and least able to weather financial loss,” she said.
The SEC created the Retail Strategy Task Force in 2017 with its mission being to develop effective strategies and techniques to identify, punish, and deter misconduct that harms every day investors.
To capitalize on strategic intel sharing, the task force works as a collaboration between the SEC’s Enforcement Division and other key divisions and offices, such as the Office of Compliance Inspections and Examinations (OCIE), the Division of Economic and Risk Analysis (DERA) and the Office of Investor Education and Advocacy, Peiken said.
This allows the Enforcement Division to focus on the kinds of misconduct that have traditionally harmed retail investors, such as accounting fraud, charging inappropriate or excessive fees, “pump-and-dump” stock frauds and Ponzi schemes, as well as newer threats, such as initial coin offerings and cybersecurity threats, he said.
Advisors who charge investors unsupported fees and commissions continue to be on the SEC’s enforcement radar, the officials said. “For example, we recently announced an initiative to encourage self-reporting and remediation by investment advisers who have received compensation for recommending or selecting more-expensive mutual fund share classes for their clients when identical and less-expensive share classes were available, without disclosing this conflict of interest,” Avakian said.
“This initiative reflects our commitment to leverage our resources to identify and expose widespread undisclosed practices that have the potential to harm investors. In short, vigorous enforcement efforts across our markets that are aimed at protecting Main Street investors have been—and will remain—a priority for the Enforcement Division,” she added.