Amid the pandemic, enforcement activity against public companies by the U.S. Securities and Exchange Commission (SEC) dropped to its lowest level in six years for fiscal 2020, according to a report from the NYU Pollack Center for Law & Business and Cornerstone Research.
The report indicated that the SEC brought just 61 enforcement cases against public companies in the year ended Sept. 30, 2020, down from 95 in the prior year. The caseload in 2020 was the SEC’s lowest since fiscal 2014.
The amount of SEC enforcement declined notably in the spring, following the Covid-19 outbreak, but restarted in the fall.
According to the report, the SEC brought nearly a third of all public company actions in September, with 18 cases filed in the last two weeks of the fiscal year.
Cases involving allegations of reporting and disclosure violations were the top issue during the year, representing almost half of the actions filed in fiscal 2020.
“The actions involving issuer reporting and disclosure allegations included the first two enforcement cases brought under the SEC’s new Earnings Per Share (EPS) Initiative, which utilizes data analytics to uncover potential accounting and disclosure violations leading to improper reporting of quarterly financial results,” said Sara Gilley, vice president at Cornerstone Research and co-author of the report, in a release.
Notwithstanding the drop in SEC enforcement filings, the report noted that the regulator imposed US$1.6 billion in monetary settlements during the year, which was up slightly from 2019.
“Disgorgement was a major component of monetary settlements this past fiscal year,” said Stephen Choi, professor the NYU School of Law and director of the Pollack Center.
The report said that US$878 million of the settlement total represented disgorgement, including US$565 million in civil actions and US$313 million in administrative proceedings.
Companies in the finance, insurance and real estate sector saw the largest share of enforcement actions (46%), the report found.
The report also noted that “the SEC opened more than 150 pandemic-related inquiries or investigations” between mid-March and September. The SEC has filed six enforcement actions related to Covid-19 involving microcap companies and individuals.