SEC Enforcement Trends Against Public Companies: A Q&A With Cornerstone Research’s David Marcus

Issuer reporting and disclosure were cited as the most frequent type of allegation against these defendants.


The U.S. Securities and Exchange Commission (SEC) brought 44 new enforcement actions against public companies or their subsidiaries (public company–related defendants) in the first half of fiscal year 2017, according to a report by the NYU Pollack Center for Law & Business and Cornerstone Research.

FEI Daily spoke with David Marcus of Cornerstone Research on SEC enforcement activity, Jay Clayton, and more.

FEI Daily: The enforcement trends for public company-related defendants were similar to previous years. What did change? Are there any common themes or SEC focus areas apparent in the enforcement actions?

David Marcus: What we’re seeing so far, at least through the first half of the SEC fiscal year, is similar activity as to the last few years. One thing that’s evident from the report is that SEC enforcement activity in 2011, 2012, and 2013 appeared to be on a bit of a decline for publicly traded companies. The number of actions declined in that time period. Then it changed in 2014 as we saw a sizeable increase in SEC enforcement activity. So far, for fiscal year 2017, we're still in that elevated activity so we don't know where that's going to take us. Will we go back to the way things were say six, seven years ago or will this elevated activity remain? I think that's yet to be seen. Certainly the message coming out of the new administration suggests there could be a decline in activity.

It's hard to know what will happen. One thing to keep in mind is that SEC actions are often brought after a lengthy investigation period so they could be investigating the company for a year or more, so it could take a little bit of time before we really see the impact of changes in priorities.

One thing to consider is the effect of cooperation on outcomes. We see that cooperation tends to be a significant factor in settlements and it appears to be rising as a percentage of settlements.

FEI Daily: What are the areas that the SEC is cautioning against now?

Marcus:  Issuer reporting and disclosure for publicly traded firms has been a big focus for the last few years and certainly came out in this half year as a big fraction of what's going on, and this has to do with the accounting issues and what companies are disclosing to the market. That's been a main focus of the SEC for a long time and it continues to be the case.

We see other things come in waves, like the Muni investigations where there was a wave in 2015 that seems to have passed. Investment advisors and broker-dealers are the other ones where you see a pretty consistent trend over time. Also the FCPA. If you listen to what the SEC is saying, issuer reporting and disclosure probably remains the most consistent area of focus.

FEI Daily:  Do you expect a different enforcement focus under Jay Clayton?

Marcus:   I think they certainly seem to suggest a lighter touch going forward if you read the tea leaves, but that might be with respect to more minor infractions. There was this broken windows-type approach of the previous administration, and so that could change. I think we'll continue to see disclosure and accounting issues remain the focus of the SEC.