Published On: Thu, Sep 20th, 2018

SEC says don’t judge enforcement strength solely on volume, fines

Wall Street shouldn’t relax its standards just because its regulator looks less muscular these days, according to a top federal official.

The Securities and Exchange Commission is still policing wrongdoers, even if the volume of its enforcement actions and dollar amount of its fines drop this year, Stephanie Avakian said Thursday in remarks prepared for a conference in Dallas. The SEC rejects the premise “that numbers—standing alone—can adequately measure the success or impact of an enforcement program,” said Ms. Avakian, the SEC’s co-director of enforcement.

Securities and Exchange Commission Co-Director of Enforcement Stephanie Avakian speaks in Baltimore on Wednesday.
Securities and Exchange Commission Co-Director of Enforcement Stephanie Avakian speaks in Baltimore on Wednesday.  (Zach Gibson / GETTY IMAGES)

“Any assessment that suggests our effectiveness should be measured solely based on the number of cases we bring over any particular period of time is misguided,” Ms. Avakian said, according to a copy of her speech.

The SEC hasn’t revealed its enforcement statistics for fiscal year 2018, which ends on Sept. 30. Total fines ordered through SEC enforcement activity fell 7.2% in 2017 to about $ 3.8 billion (U.S.), the lowest total since 2013, according to SEC figures.

The SEC’s affinity for judging enforcement based on fines has ebbed and flowed. Former SEC Chairman Mary Jo White, who ran the regulator during the Obama administration, insisted the agency’s settlements should “have teeth.” The SEC under Ms. White annually touted the record number of cases it brought and the penalties it obtained.

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Jay Clayton, the current chairman, has said the SEC should balance the desire to punish companies with the harm such fines have on shareholders. Mr. Clayton has said he believes punishing guilty individuals “drives behavior more than corporate accountability.”

Ms. Avakian didn’t say in her prepared speech how the 2018 totals will differ from prior years. But she suggested they could fall again, partly due to Supreme Court decisions that have curbed the SEC’s ability to recoup funds for burned investors.

The high court, in the 2017 decision Kokesh v. SEC, said the regulator has only five years to sue bad actors after a fraud occurs. That limited the SEC’s ability to get people and companies to give back all of the ill-gotten gains they received as a result of misconduct.

SEC officials have previously said the decision prevented them from getting more than $ 800 million in fines that they could have sought under the law before the Kokesh decision.

“That number will continue to go up over time,” Ms. Avakian said in the speech prepared for the University of Texas School of Law’s Government Enforcement Institute.

Ms. Avakian also said the SEC’s enforcement program was challenged by “transition and personnel changes, as well as structural changes.” The regulator has been unable to fill many enforcement slots due to a federal hiring freeze. Some of the SEC’s regional offices have suffered significant personnel migrations to the private sector.

Despite those limitations, the SEC has been vigilant in pursuing illegal activity in the market for initial coin offerings, Ms. Avakian said. In a coin offering, or ICO, a software startup issues a new digital coin to investors in exchange for funding its venture. The SEC says many ICOs are illegal securities sales, and some “are simply outright frauds,” Ms. Avakian said.

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In the case of ICOs that don’t involve fraud, but still trampled various investor-protection laws, “we will likely recommend more substantial remedies against issuers that fail to comply,” Ms. Avakian said.

Write to Dave Michaels at

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SEC says don’t judge enforcement strength solely on volume, fines