RIA Compliance and Practice Management Blog

SEC RIA Enforcement Actions Decreased During the 2020 Fiscal Year

Posted by RIA in a Box

Nov 19, 2020 5:02:28 PM

SEC enforcement actions against RIA firms during COVIDOn November 2, 2020, the Securities and Exchange Commission ("SEC") released its Division of Enforcement 2020 annual report which highlights the 715 enforcement actions pursued during its most recent fiscal year. This latest annual report also shows how the SEC initially responded to COVID-19 and how they are working to uphold the integrity of investors during the global pandemic. In addition, the Commission has continued to focus on "Financial Fraud and Issuer Disclosure" and also saw a record-breaking year for the whistleblower program. During the 2020 fiscal year, the SEC filed 405 stand alone enforcement actions, 180 follow-on administrative proceedings, and 130 enforcement actions related to delinquent filings.

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Decreased Enforcement Actions Against RIA Firms

Even though the SEC saw a decrease in enforcement actions compared to the 2019 Fiscal Year, the SEC still considered the results from this past year to be a success due to the unprecedented challenges brought forth by the COVID-19 pandemic. The Commission filed 715 enforcement actions in the 2020 Fiscal Year, with 492 of these actions occurring after the mandatory remote work order in mid-March. Furthermore, out of the 715 enforcement actions, 405 were stand alone enforcement actions, 180 were follow-on administrative proceedings, and 130 were enforcement actions related to delinquent filings. Below is a more detailed breakdown from the SEC Division of Enforcement report of the 405 stand alone enforcement actions:

number of SEC enforcement actions against RIA firms

Source: 2020 SEC Division of Enforcement 2019 Annual Report

In regards to investment advisers and investment companies, there was a sharp decrease in the number of standalone enforcement actions compared to the prior 2019 fiscal year. In 2019, the SEC filed 191 standalone enforcement actions targeted at investment advisers and investment companies. In 2020, 87 standalone enforcement actions were filed. However, it's important to note that during the 2019 fiscal year there were 95 RIA firms that voluntarily self-reported to the Enforcement Division as part of the Share Class Selection Disclosure Initiative. Thus, when 2019 figures are adjusted to remove those 95 enforcement actions, this results in an adjusted 2019 fiscal year figure of 96 investment adviser and investment company enforcement actions. Thus, compared to the 87 enforcement actions filed in 2020, actions taken against RIA firms and investment companies were down ~9% compared to 2019 and down 19% compared to the 108 enforcement actions taken against investment advisers and investment companies during the 2018 fiscal year.

COVID-19 Steering Committee Initiative

As a result of the global pandemic and the market uncertainty that rocked the nation in the spring, the SEC responded by creating the COVID-19 Steering Committee in mid-March. The goal of this committee was to actively look for and investigate any possible misconduct that could potentially harm investors, and to do so in a coordinated and centralized way. According to the report, multiple teams within the SEC came together to ensure the success of the Committee, including the:

Retail Strategy Task Force ("RSTF") who, in collaboration with the SEC's Office of Investor Education and Advocacy, issued an Investor Alert warning of potential COVID-19-related scams targeting retail investors, highlighting specific types of frauds investors should be wary of, and providing specific steps that retail investors could take to protect themselves.

Due to the efforts and hard work of the Committee, more than 150 COVID-related investigations were opened between mid-March and the end of the fiscal year, many of which are still underway. 

Record-breaking Year for Whistleblower Program

Over the past several years, the whistleblower program has become a large cornerstone of the SEC's enforcement program. The 2020 fiscal year was record-breaking year for the whistleblower program with awards issued coming in at $175 million to 39 individuals. Both of these figures are greater than any other year in the program's history as shown below:

SEC enforcement division RIA whistleblower awards

Source: 2020 SEC Division of Enforcement 2019 Annual Report

In addition, the 2020 Fiscal Year also saw the highest number of issued preliminary determinations, coming in at 315, a 95% increase from the next highest fiscal year, with 197 issued final orders, a 19% increase over the next highest year. The SEC also made changes to the whistleblower program to provide more clarity and transparency to whistleblowers through the approval process.

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Be sure to check back soon as we continue to provide more detailed data and information on RIA regulatory compliance enforcement focus areas and trends. As always, the Chief Compliance Officer ("CCO") of every investment advisory firm needs to continue to ensure that compliance programs and are being designed and implemented to help prevent activity which could lead to potential enforcement action. In particular, CCOs should continue to pay close attention to new and emerging regulator focus areas.


Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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