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SEC actions against US financial firms’ subsidiaries up 50% in 2015

A new report shows a dramatic increase in the total number of enforcement actions initiated by the US Securities and Exchange Commission (SEC) against public company defendants and related subsidiary defendants.

The Securities Enforcement Empirical Database (SEED), which tracks and records information for SEC enforcement actions filed against public companies traded on major US exchanges and their subsidiaries, has released its Midyear FY 2016 Update, which shows a sharp rise in actions filed during 2015.

The key findings in the report were:

  • There was a dramatic increase in the total number of enforcement actions initiated against public company defendants and related subsidiary defendants, with 52 actions with a related subsidiary defendant in FY 2015 compared to an average of 18 actions each year between FY 2010 and FY 2014 (see figure 1 below, courtesy of SEED).
  • Overall, there were 84 actions filed against public companies and related subsidiary defendants in 2015, a 53 per cent increase on the total number of actions filed in 2014.
  • 43 actions have been filed in the first half of 2016, suggesting that this year is likely to be on par with 2015 levels.
  • From FY 2010 through FY 2014, the SEC filed twice as many actions against public company defendants as against related subsidiary defendants. In FY 2015 and the first half of FY 2016, however, there were 49 per cent more actions brought against related subsidiary defendants.
  • The majority of enforcement actions against related subsidiary defendants focus on financial services firms. The data show that the SEC has brought charges against subsidiaries of financial firms more often than the publicly traded parent company of financial firms.

Also, the most common allegations against public company and related subsidiary defendants in the first half of 2016, as shown in figure 2 below (courtesy of SEED) were violations of:

  • Issuer Reporting and Disclosure;
  • Foreign Corrupt Practices Act (FCPA);
  • Investment Advisor/ Investment Companies; and
  • Municipal Securities/Public Pensions.

David F. Marcus, senior vice president at Cornerstone Research and one of the authors of the report, told CFO Magazine: “What’s happening is that actions against financial firms have increased and most of the actions against financial firms are brought against their subsidiaries.” On the question of why the SEC is going after the subsidiaries of financial services firms, Marcus answered: “That’s a question we want to investigate. It could have something to do with the way financial firms are set up – with lots of different subsidiaries.”

SEED is an online public resource managed by the NYU Pollack Center for Law & Business in cooperation with Cornerstone Research.

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Control & Compliance in Operations
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