Yesterday the SEC’s Division of Enforcement announced its Enforcement Results for Fiscal Year 2022, and there are a few key takeaways for fund managers.

  • The Commission brought 760 total enforcement actions in FY 2022, which was not a record but still a 9% increase over FY 2022. The SEC also filed 462 new standalone enforcement actions, also an increase over the prior year.
  • On disgorgement and penalties, the SEC set a record, obtaining orders and judgments for over $6.4 billion in disgorgement and penalties.  Over the past decade, this figure has never exceeded $4.7 billion. 
  • The SEC highlighted its actions against private fund advisers: specifically “recurring issues” involving undisclosed conflicts of interest, fees and expenses, MNPI, and other matters.

The Commission also highlighted its actions against gatekeepers (accountants, lawyers and transfer agents) and cases involving crypto, ESG, SPACs and other recent high-profile matters.

  FY 2022 FY 2021 FY 2020 FY 2019 FY 2018 FY 2017 FY 2016
Standalone Enforcement Actions (Civil and Admin. Proceedings) 462 434 405 526 490 446 548
Follow-On Admin. Proceedings 169 143 180 210 210 196 195
Delinquent Filings 129 120 130 126 121 112 125
Total Actions 760 697 715 862 821 754 868
Disgorgement and Penalties Ordered (in billions) $6.44 $3.80 $4.68 $4.35 $3.95 $3.79 $4.08

We believe that enforcement risks for private fund advisers are now the greatest they have been since 2015.  Under former Chairman Clayton, private fund advisers benefited indirectly from the SEC’s focus on “Main Street” investors.  That focus has now shifted to the private funds industry.  Over the past year, the Commission has fully settled into its enforcement priorities: more cases and higher penalties.

Taking its cues from Chairman Gensler, the Enforcement Division has shown it intends to display an aggressive approach. The SEC’s enforcement approach for private funds is driven not only by the general desire to get tough on “Wall Street” but also by a focus on investor protection. Since 2016, the number of private funds managed by SEC-registered advisers has increased 40 percent, to 50,000 funds.  Gensler stated in recent congressional testimony that private fund advisers “touch so much of our economy” because investors in those funds include retirement plans, university endowments, and others; while the funds themselves support “entrepreneurs, small business owners, and managers of late-stage companies.” The Commission has indicated that it will drive “fairness” in the private fund space through enforcement.