On November 14, 2023, the SEC’s Division of Enforcement announced its Enforcement Results for Fiscal Year 2023.  Below are some key takeaways for fund managers:

  • The Commission brought 760 total enforcement actions in FY 2023, which represents a 3% increase over FY 2022. The SEC also filed 501 new standalone enforcement actions, representing an 8% increase over the prior year.
  • The SEC obtained orders and judgments for over $4.9 billion in disgorgement and penalties, the second highest amount in its history. This number was second only to last year’s $6.4 billion (which notably included several sizable settlements against large broker-dealers in the SEC’s off-channel messaging sweep).
  • Overall, 18% of the SEC’s actions this year involved either investment advisers or investment companies, which is roughly in line with last year’s 23%. Over the past eight years, actions involving investment advisers/investment companies have consistently comprised the highest or next highest percentage of total SEC matters by category.
  • With respect to the SEC’s Whistleblower Program, the Commission set several noteworthy records this year. Namely, the SEC received a record number of whistleblower tips, awarded a record number of whistleblower awards, and awarded the largest ever award of nearly $279 million to a single whistleblower.  In addition, the SEC imposed a record-high $10 million penalty against a private fund manager for violations under Rule 21F-17, which prohibits impediments to whistleblowing.
  • The SEC highlighted its “initiative investigating noncompliance with the Marketing Rule,” which resulted in nine investment advisers being charged with violations relating to hypothetical performance.
  • The SEC emphasized several high-profile actions involving recordkeeping, reporting and other compliance related violations “targeting misconduct that undermines its effective oversight of the securities industry.” The SEC imposed significant civil penalties in these actions against regulated entities and issuers despite the absence of any allegations of investor harm.
  • The SEC further highlighted multiple enforcement actions addressing ESG issues, including cases involving misstatements made during the marketing of ESG-branded investment products.
  • The SEC came down especially hard on crypto-related matters this year, filing charges against a host of crypto exchanges, lending/staking products, and other intermediaries. The SEC brought several high-profile litigated matters that will challenge the scope of its regulatory authority in the crypto space.  This is part of a growing willingness on the part of the SEC to litigate matters when necessary. More than 40 percent of the standalone matters for FY 2023 were filed in whole or in part as litigated actions, against both entities and individuals.

Enforcement Actions Filed in Fiscal Years 2018 to 2023

  FY 2023 FY 2022 FY 2021 FY 2020 FY 2019 FY 2018
Disgorgement and Penalties Ordered (in billions) $4.949 $6.44 $3.80 $4.68 $4.35 $3.95
Total Actions 784 760 697 715 862 821
% of Total Actions Involving Investment Advisers / Investment Companies 18% 23% 23%

19%

 

29% 21%

These results demonstrate an SEC that has been active on the enforcement front.  The SEC’s Enforcement Director noted earlier this year that private funds were a “substantive priority area” for the division, specifically noting concerns about potential conflicts of interest and fee and expense issues.  Moreover, in over the past two years the SEC has pushed an aggressive slate of rulemaking affecting the private funds industry that impose new restrictions and arm regulators with additional tools to identify, exam and investigate market practices.  As 2024 begins, we expect to see more scrutiny of private fund managers, as the SEC takes steps to enforce the new rules and the principles it has espoused in its rulemaking—for example, focused on fiduciary obligations of private fund managers.

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Photo of Julia M. Ansanelli Julia M. Ansanelli

Julia Ansanelli is an associate in the Litigation Department and a member of the firm’s White Collar Defense & Investigations, Securities Litigation, and Asset Management Litigation Practice Groups.  She has worked extensively defending clients facing criminal and regulatory investigations by the Securities and…

Julia Ansanelli is an associate in the Litigation Department and a member of the firm’s White Collar Defense & Investigations, Securities Litigation, and Asset Management Litigation Practice Groups.  She has worked extensively defending clients facing criminal and regulatory investigations by the Securities and Exchange Commission, the U.S. Department of Justice, and the Federal Trade Commission.  She is also a member of the litigation team that represents the Financial Oversight and Management Board in the Commonwealth of Puerto Rico’s bankruptcy proceedings.  Julia has experience with various stages of complex commercial litigation, both in federal and state courts.

Julia maintains an active pro bono practice, with an emphasis on immigration law, and in particular, special immigrant juvenile status.  In recognition of her pro bono efforts, Julia received a Proskauer Golden Gavel award in 2018 in connection with an amicus brief she helped prepare in support of a class of thousands of immigrant youth that had been denied special immigrant juvenile status in New York based on a then-new USCIS policy.  The class of immigrant youth were ultimately successful when the Southern District of New York judge agreed that the USCIS policy violated federal immigration law.

During law school, she served as Case Note Editor of the Touro Law Review, in which she published two case notes of her own, and Vice President of Touro’s Latin American Law School Association. Julia also interned for the Honorable Magistrate Kathleen Tomlinson in the Eastern District of New York.

Julia is a frequent contributor to Proskauer’s Minding Your Business and Capital Commitment blogs.  She has also been recognized as a Super Lawyers “Rising Star” from 2020-2023.

Photo of Joshua M. Newville Joshua M. Newville

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and…

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and criminal investigations. In addition, Josh advises registered investment advisers and private fund managers on regulatory compliance, SEC exams, MNPI/insider trading and related risks.

Before joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset Management Unit, a specialized unit focusing on investment advisers and the asset management industry. His prior experience with the SEC provides a unique perspective to help asset managers manage risk and handle regulatory issues.

Photo of Robert Pommer Robert Pommer

Robert W. Pommer III is a partner in the Litigation Department and a member of Proskauer’s Securities Litigation, White Collar Defense & Investigations groups and the Asset Management Litigation team.

Bob’s practice focuses on a broad range of securities-related enforcement and compliance issues.

Robert W. Pommer III is a partner in the Litigation Department and a member of Proskauer’s Securities Litigation, White Collar Defense & Investigations groups and the Asset Management Litigation team.

Bob’s practice focuses on a broad range of securities-related enforcement and compliance issues. He represents private fund managers, financial institutions, public companies, and their senior executives in enforcement investigations and litigation conducted by the SEC, the U.S. Department of Justice, and other governmental entities and financial services regulators. He also conducts internal investigations and counsels investment advisers and public companies on regulatory compliance, corporate governance and other SEC-related issues.

Prior to his career in private practice, Bob served as Assistant Chief Litigation Counsel in the SEC’s Division of Enforcement for nine years. While there, he investigated and litigated several high-profile cases involving complex financial fraud and audit failures. Bob also worked on enforcement actions involving insider trading, investment adviser and broker-dealer issues, market manipulation and other violations of the federal securities laws.