An effort to combat mutual fund fee disclosure failures drove a surge in enforcement action against public companies by the U.S. Securities and Exchange Commission (SEC) last year, according to a new report from Cornerstone Research and the NYU Pollack Center for Law & Business.
The report found SEC enforcement actions against public companies jumped by more than 30% in fiscal 2019 (to Sept. 30) from the previous year.
This increase was largely driven by self-reporting under the SEC’s Share Class Selection Disclosure Initiative, the report said, noting that this accounted for 27% of the enforcement activity against public companies last year.
The Share Class Initiative, which sought to tackle firms’ failure to make required mutual fund fee disclosures, also accounted for the majority of enforcement actions against investment advisers, the report noted.
“As part of the SEC’s stated focus on retail investors, more than half of new actions against public companies and subsidiaries in [fiscal] 2019 targeted investment advisers/investment companies or broker dealers,” said Stephen Choi, professor at the NYU School of Law and director of the Pollack Center.
The report said that monetary settlements involving public companies and their subsidiaries totalled US$1.5 billion in fiscal 2019, which is down from more than US$2.4 billion in 2018, but is in line with the average over the 2010-2018 period.
Additionally, the report indicated that the SEC enjoyed a record level of co-operation in its enforcement efforts in fiscal 2019. It reported that 76% of defendants co-operated during the year, up from an average of 51% from 2010 to 2018.