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SEC Enforcement Actions - Key Trends from 2021

The SEC pursued an aggressive enforcement agenda in 2021, as highlighted in recent data on enforcement actions and penalties. The actions targeted issues from insider trading and accounting fraud to misleading SPAC deals and crypto asset violations. Several key trends emerged that provide insight into the SEC's priorities for 2022 and beyond.

Record Enforcement Results

Fiscal year 2021 saw the SEC achieve multiple records in its enforcement programs:

• - 697 total enforcement actions, the highest in 10 years. Up 7% from 2020.
• - 354 "standalone" enforcement actions, a 10-year high. These are critical actions outside of large investigative sweeps.
• - Monetary remedies totaling $6.4 billion, the highest ever. Almost triple the prior year.

These figures indicate an emboldened SEC aggressively pursuing more investigations and levying larger penalties. The records foreshadow what is likely another strong year of robust enforcement under SEC Chair Gary Gensler in 2022.

Areas of Focus

Several core areas accounted for significant portions of SEC actions and penalties in 2021:

Insider Trading: Insider trading cases produced over $1.4 billion in fines ordered, more than double any prior year. These cases signal insider trading remains one of the SEC's foremost priorities. We expect this stringent focus to continue into 2022.

Accounting and Disclosure Fraud: Actions for fraudulent financial reporting generated approximately $650 million in fines, showing vigilance over accounting abuses. Public companies should expect ongoing scrutiny of accounting practices.

Investment Advisors: The SEC brought 98 enforcement actions related to investment advisors and funds, collecting over $1.8 billion. Policing the investment management industry is clearly still an emphasis.

SPACs: Oversight of special purpose acquisition companies (SPACs) is a newer focus, with a number of actions in 2021 alleging misleading disclosures and accounting issues. We anticipate continuing enforcement attention toward SPAC deals in 2022.

Crypto Assets: On the emerging front, over $2.5 billion in fines came from cyber-related cases including crypto offerings. This area is ripe for even greater SEC focus as cryptocurrencies proliferate.

Individual vs. Company Actions

Of note, 2021 saw more actions against individuals compared to companies and corporations:

• - Actions against public companies declined to 122, versus 219 in 2020. Fines against companies totaled only $3.94 billion.
• - 526 actions were brought against individuals, securing over $2.34 billion in fines. CEOs, CFOs, auditors and other personnel were prime targets.

The shift toward individual penalties shows the SEC accentuating personal liability over entity-level fines. This puts directors, executives and employees on notice they could face severe consequences for misconduct without protection behind the corporate shield. Expect SEC charges against individuals to continue rising in 2022.

Looking Ahead to 2022

The blockbuster enforcement year in 2021 provides several clues on the SEC's plans for 2022:

• - Continuing Focus on Crypto: The flurry of cryptocurrency cases will almost certainly expand as the SEC devotes more resources to policing this area. From coins to NFTs to DeFi platforms, crypto enforcement is heating up.
• - Individual Accountability: Executives and employees will face prosecution as the SEC spotlights personal liability for securities laws violations over corporate liability.
• - Insider Trading Remains a Priority: With record fines in 2021, insider trading cases will remain at the forefront of the SEC agenda. Any unlawful trading based on material nonpublic data is a target.
• - SPAC Scrutiny Rising: Given the spike in SPAC IPOs, their disclosures and reporting will draw increasing SEC attention and potential enforcement actions.
• - ESG and Climate: As ESG investing and climate disclosures grow, any misleading statements in these areas could become the new frontier for SEC enforcement.

The SEC often telegraphs its enforcement priorities and actions. The trends from 2021 provide a clear guide to where the agency will focus attention and resources in the coming year. Public companies and regulated entities should evaluate their internal controls, policies and personnel training in light of these priorities. With Gary Gensler aggressively pursuing securities law violations, the SEC is poised for another year of vigorous enforcement activity in 2022.

Key Insider Trading Cases of 2021

As insider trading enforcement reached new records in 2021, several high-profile cases drove results:

• - SEC v. Eight Individuals: In 2021, the SEC charged eight individuals who traded on inside information about acquisitions leaked from investment banking and law firms. The illicit trading yielded over $5 million in profits from just a few hundred thousand dollars invested. Many learned the info as friends and family of deal insiders. This case exemplifies the SEC's crackdown on insider ring tippers and tippees.
• - U.S. v. John David McAfee: The SEC filed civil charges and the DOJ criminally indicted cryptocurrency promoter John McAfee in 2021 for scalping crypto token investments based on material nonpublic information. McAfee allegedly leveraged confidential deal terms from his cryptocurrency startup ventures to illegally trade crypto assets for $13 million in profits. The high-profile defendant demonstrates the SEC's sharper focus on insider cryptocurrency trading.
• - SEC v. Matthew Panuwat: As detailed in a previous blog post, Panuwat was charged in 2021 with trading options based on confidential sales reports from Thai Central Group for over $5 million in illegal profits. His alleged use of insider data for options trading highlights an emerging SEC priority.
• - U.S. v. Telemaque Lavidas: Lavidas was convicted in 2021 of trading stock in Ariad Pharmaceuticals based on tipped confidential drug trial results provided by his father, an Ariad board member. This insider trading prosecution over a tipper-tippee information chain signals the SEC's deep reach to secondary insider violators.

These major cases helped produce record fines for insider trading in 2021. They offer a window into the specific scenarios, strategies and defendants we can expect the SEC to aggressively pursue in 2022 and beyond. Any company personnel coming into contact with market-moving confidential information should be on high alert in light of the SEC's results and priorities.

Conclusion

The SEC's historic year for monetary penalties in 2021 demonstrates its determination under new leadership to instill discipline in capital markets through tougher enforcement. Companies and individuals involved in public securities can expect a steady pace of investigations, charges and penalties as the SEC flexes its full powers. With insider trading remaining priority number one, those potentially exposed to confidential material information should take heed. The SEC's enforcement trendlines point toward another year of robust activity policing securities laws and regulations in 2022.