The Securities and Exchange Commission recovered its highest dollar amount in civil penalties ever in fiscal year 2022, driven in part by the mammoth $1.2 billion penalties against JP Morgan Securities, as well as 16 other firms for failing to preserve text message communications on personal devices.
The money ordered in SEC actions (which includes disgorgement and prejudgment interest in addition to civil penalties) totaled $6.439 billion in fiscal year 2022, an increase from $3.852 billion in the previous fiscal year, according to enforcement results released Tuesday. Civil penalties totaled $4.194 billion, while disgorgement dropped 6% to $2.245 billion.
SEC Chair Gary Gensler said he continued to be impressed with the commission’s Enforcement Division, while Enforcement Division Director Gurbir S. Grewal said they tried to use “every tool in our tool kit,” including penalties onerous enough to act as a deterrent.
“While we set a Commission record this past fiscal year for total money ordered at $6.4 billion, including a record $4.2 billion in penalties, we don’t expect to break these records and set new ones each year because we expect behaviors to change,” Grewal said about the report. “We expect compliance.”
The SEC first settled charges with JP Morgan Securities in December 2021, arguing that between January 2018 and November 2020, its employees often communicated about business issues via personal devices, including using texting, WhatsApp and personal email. None of the records were preserved. JP Morgan agreed to pay $125 million to settle the charges.
In late September, the SEC fined 16 other firms for “widespread and long-standing failures” in communication supervision that went to the senior levels. The firms agreed to settle charges, and included many prominent names in financial services, including Barclays Capital, Bank of America Securities, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS. The charges were seen by some as a “shot across the bow” for the industry, alerting them that it would be a part of all future exams.
The SEC increased the amount of total enforcement actions to 760 in fiscal year 2022, a 9% jump from the previous year. Of the 760, 462 were new or “stand-alone” actions, up 6.5% from fiscal year 2021; 129 actions were against issuers who were “allegedly delinquent in making required filings;” and 169 were “follow-on” administration actions, including barring registrants based on criminal or civil convictions.
Among the actions the SEC cited included a $1 billion penalty against Allianz Global Investors, which allegedly concealed the downside risks of a complex options trading strategy from investors. The commission also brought actions in the ESG space, with BNY Mellon’s investment advisor subsidiary paying $1.5 million to settle charges that it had misrepresented the ESG scrutiny of several managed mutual funds.
The co-founder of TradeZero America also settled charges earlier this year that he briefly barred trading during the “meme stock” frenzy of early 2021, despite public claims to the contrary. Additionally, the SEC brought its first enforcement action related to Regulation Best Interest in June, charging Western International Securities and five of its reps with violations stemming from recommendations that clients purchase risky “L” Bonds.
Fiscal year 2022 also marked the second-highest year in whistleblower awards, both in total dollars awarded and in the number of whistleblowers. In total, the SEC issued $229 million in 103 total awards and received an all-time-high number of tips alleging wrongdoing of more than 12,300.
