SEC Releases FY 2023 Enforcement Results, Including $5 Billion in Financial Remedies

SEC Announces Enforcement Results for Fiscal Year 2023

The Securities and Exchange Commission today announced that it filed 784 total enforcement actions in fiscal year 2023, a 3 percent increase over fiscal year 2022, including 501 original, or “stand-alone,” enforcement actions, an 8 percent increase over the prior fiscal year. The SEC also filed 162 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders and 121 actions against issuers who were allegedly delinquent in making required filings with the SEC.

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In fiscal year 2023, the SEC obtained orders for $4.949 billion in financial remedies, the second highest amount in SEC history, after the record-setting financial remedies ordered in fiscal year 2022. The financial remedies comprised $3.369 billion in disgorgement and prejudgment interest and $1.580 billion in civil penalties. Both the disgorgement and civil penalties ordered were the second highest amounts on record. The SEC also obtained orders barring 133 individuals from serving as officers and directors of public companies, the highest number of officer and director bars obtained in a decade.

Charter Communications to Pay $25 Million Penalty for Unauthorized Stock Buybacks

The Securities and Exchange Commission today announced settled charges against Charter Communications Inc. for violating internal accounting controls requirements when it engaged in stock buybacks not authorized by its board of directors.

According to the SEC’s order, Charter’s board authorized company personnel to conduct certain buybacks using trading plans that conform to SEC Rule 10b5-1. Rule 10b5-1 offers protection to companies and individuals from insider trading liability as long as they meet the conditions of the rule, including a requirement that they not retain the ability to change the planned purchases or sales after they adopt the trading plan. However, the SEC’s order finds that, from 2017 to 2021, Charter used plans that included “accordion” provisions, which company personnel described as giving Charter flexibility, that allowed Charter to change the total dollar amounts available to buy back stock and to change the timing of buybacks after the plans took effect. According to the SEC’s order, because Charter’s trading plans did not meet the conditions of Rule 10b5-1, the company’s buybacks did not comport with the board’s authorizations.

The SEC’s order finds that Charter included accordion provisions in nine separate trading plans over the four-year period. The SEC’s order finds that Charter’s repeated use of trading plans that did not conform to Rule 10b5-1 was the result of the company’s insufficient internal accounting controls, in particular, its absence of reasonably designed controls to analyze whether the discretion the accordion provisions gave executives to alter the company’s trading was consistent with the board’s authorizations.

Carson Block, Nate Anderson Become SEC Tipsters for Cash Payouts

Wall Street’s cops are finding themselves partnered with an unlikely star witness against misbehaving firms: short sellers.

Alongside their public reports, short sellers are quietly sharing their research about sketchy accounting and other misdeeds with the US Securities and Exchange Commission’s whistleblower office in hopes of making some extra money.

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“Many of the really good external fraud detectives are short sellers,” Block said in an interview. “If you want the whistleblower program to be open to external whistleblowers, you have to be open to short sellers and can’t discriminate against them.”

Four of every 10 bounties went to people who weren’t insiders, according to SEC data from 2021, which didn’t break out how many were short activists. That’s because unless a tipster publicizes it, whistleblower filings and awards are confidential. The secrecy makes it near impossible to tell how often the SEC rewards short sellers. The bids for bounties by Block and Bass were revealed only when litigation arose over their whistleblower proceedings. The SEC declined to comment for this article.

SEC, CFTC Pass $2 Billion Award Milestone but Reforms are Still Needed

Combined, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have awarded more than $2 billion to whistleblowers.

The agencies’ whistleblower programs, which were created alongside each other with the passage of the Dodd-Frank Act in 2010, passed the $2 billion threshold during the 2023 Fiscal Year. Kohn, Kohn & Colapinto has published indexes tracking all the whistleblower award orders issued by both the SEC and CFTC.

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While the programs have been immensely successful, further reforms are needed to ensure that programs stay funded and that whistleblowers are not unfairly disqualified from awards. Bipartisan bills offering much-needed reforms to each program are currently pending in Congress. Swift passage of these bills can help ensure that the SEC and CFTC whistleblower programs continue to bring in billions of dollars for taxpayers.

New York Times, crypto analyst beat Dfinity defamation claims

It’s easy to understand why companies are enraged when financial analysts issue damning reports that just so happen to serve the analysts’ own financial interests.

But turning that outrage into a viable defamation lawsuit is very tough, as blockchain developer Dfinity Foundation learned on Monday: U.S. District Judge Lewis Kaplan of Manhattan dismissed Dfinity’s case against crypto analyst Arkham Intelligence, which issued a 2021 report on the precipitous price drop for Dfinity’s ICP token, and against the New York Times, which published an article recounting Arkham’s findings.

Kaplan ruled that Arkham’s allegedly defamatory assertion —that Dfinity insiders had reaped billions by dumping tokens on crypto exchanges at a time when small investors could not access their tokens — was an opinion, not an actionable defamatory statement. Arkham, he said, disclosed the publicly available information underlying its report and “caveated its conclusions” with warnings about the inferences it had drawn from public source material.

It Could be a While Before a Buoyant IPO Market Returns

According to Renaissance Capital (here), in the heady days during the two-year period 2020 and 2021, 618 traditional U.S. IPOs were completed, raising over $220 billion. (These stats do not include SPAC IPOs). By contrast, in the period 2022-2023 YTD, there have only been 171 traditional U.S. IPOs completed, raising just $27 billion. While many market observers yearn for a return of the buoyant IPO market that prevailed two years ago, signs are that it could be a while before the IPO market takes off again. As detailed in a November 14, 2023, Wall Street Journal article about the state of the IPO market, and as discussed below, there are a host of concerns weighing on the IPO market.