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  • Daniel Goelzer

SEC Disclosure Enforcement is in High Gear

Updated: Dec 5, 2022

Both Securities and Exchange Commission Chair Gensler and Division of Enforcement Director Grewal have been vocal about the importance of an active and aggressive SEC enforcement program, particularly with respect to public company disclosure. See, e.g., Gensler, This Law and Its Effective Administration, Remarks Before the Practising Law Institute’s 54th Annual Institute on Securities Regulation (November 2, 2022) (“Make no mistake: If a company or executive misstates or omits information material to securities investors, whether in an earnings call, on social media, or in a press release, we will pursue them for violating the securities laws.“) and Grewal, Remarks at Securities Enforcement Forum (November 15, 2022). Two recent reports on the fiscal year 2022 activities of the SEC’s Division of Enforcement demonstrate that enforcement has accelerated, and that, along with other enforcement priorities, cases involving public company disclosure are on the upswing. This emphasis on disclosure enforcement is a change from the priorities of the previous SEC administration. See SEC Enforcement Ticks Up, but not for Financial Reporting, December 2018 Update.


SEC Division of Enforcement


On November 15, the SEC announced the fiscal year 2022 results of its enforcement program. During FY 2022 (ended September 30, 2022), the SEC filed 760 enforcement actions, a nine percent increase over the prior year. Monetary payments ordered in SEC actions (i.e., civil penalties, disgorgement, and pre-judgment interest) totaled $6.439 billion, the most in SEC history and up from $3.852 billion in fiscal year 2021. The 2022 total includes $4.19 billion in civil penalties (a record) and $2.25 billion in disgorgement of illegally-obtained gains (six percent less than in 2021).


The SEC’s announcement of its 2022 enforcement record made several points related to public company disclosure cases:

  • Financial fraud and issuer disclosure. “Public company disclosure is the bedrock of our securities markets. The SEC places a high priority on pursuing issuers or their employees who make materially inaccurate disclosures, as well as auditors and their professionals who violate applicable laws and rules in connection with such disclosures. The Division’s attorneys and accountants regularly investigate and recommend enforcement actions charging misconduct by issuers, auditors, and their employees.” Fiscal year 2022 examples of this emphasis on disclosure include actions against –

  • The Boeing Company and its former CEO for misleading investors about the safety of the company’s 737 MAX planes following crashes in 2018 and 2019. See In the Matter of The Boeing Company (September 22, 2022) and In the Matter of Dennis A. Muilenburg (September 22, 2022).

  • Compass Minerals International for misleading investors about a technology upgrade the company erroneously claimed would reduce costs and for failing to properly assess whether to disclose financial risks created by their excessive discharge of mercury in Brazil. See In the Matter of Compass Minerals International, Inc. (September 23, 2022).

  • NVIDIA Corporation for inadequate disclosures concerning the impact of crypto mining on the company’s gaming business. See In the Matter of NVIDIA Corporation (May 6, 2022).

  • RSM and three senior-level employees for failing to properly audit a client’s financial statements over a four-year period during which the client was improperly inflating revenues. See In the Matter of RSM US LLP (September 30, 2022).

  • Individual accountability. Individual – as opposed to only corporate – responsibility for disclosure and other types of violations has been an SEC enforcement theme for several years. In fiscal year 2022, more than two-thirds of the SEC’s stand-alone enforcement actions involved at least one individual defendant or respondent. These individuals included senior public company executives. For example, Dennis Muilenburg, Boeing's former CEO, was charged with making materially misleading public statements about the safety of the company’s 737 MAX airplanes (see above). In addition, under Sarbanes-Oxley Act Section 304, the SEC ordered executives at several firms to return bonuses and compensation following misconduct resulting in accounting restatements, even though the executives were not charged with the misconduct.

  • Focus on gatekeepers. The SEC brought numerous actions in 2022 charging disclosure gatekeepers, including auditors and lawyers, with various lapses. See, e.g., EY Fined $100 Million for Ethics Exam Cheating, June-July 2022 Update. Director Grewal has emphasized that “gatekeepers must foster a proactive culture of compliance and responsibility – both for themselves and for their clients.” Testimony on Oversight of the SEC’s Division of Enforcement Before the United States House of Representatives Committee on Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets (July 21,2022).

  • Environmental, social, and governance (ESG). ESG has become increasingly important to investors, and SEC enforcement has focused on these issues with respect to public companies and investment products and strategies. For example, the Commission charged Vale S.A., one of the world’s largest iron ore producers, with allegedly making false and misleading claims about the safety of its dams prior to the collapse of the Brumadinho dam in Brazil, which killed 270 people. See SEC is Serious About ESG Disclosure Enforcement, April-May 2022 Update.

NYU Pollack Center and Cornerstone Research


New York University’s Pollack Center for Law & Business and Cornerstone Research paint a similar picture in SEC Enforcement Activity: Public Companies and Subsidiaries--Fiscal Year 2022 Update. The Pollack Center/Cornerstone report, which focuses on fiscal year 2022 SEC actions against public companies and their subsidiaries, finds that the SEC filed 68 enforcement actions against these types of entities in 2022 (which, they note, was the first full year of SEC Chair Gensler’s tenure). The 68 actions reflected a 28 percent increase from FY 2021. “Issuer Reporting and Disclosure” was the most common category of allegation against public companies in FY 2022, representing 38 percent of these actions. (Allegations in the Broker Dealer classification were the second most common.) Other significant categories of cases against public companies included the Foreign Corrupt Practices Act (9 percent) and Securities Offerings (6 percent).


Seventy-five public company and subsidiary defendants settled with the SEC in 2022. Monetary settlements were imposed against 97 percent of defendants in these actions, totaling $2.8 billion, the largest amount in any fiscal year since the Pollack Center and Cornerstone began tracking SEC public company enforcement in 2010. The median monetary settlement in FY 2022 was $9 million, and the average was $42 million. (Monetary settlements in cases alleging recordkeeping failures against 16 public company broker-dealer subsidiaries were 44 percent ($1.2 billion) of total monetary settlements.) Eighty-two percent of the monetary penalty total represented civil penalties, while the balance was disgorgement of illicit profits. The terms of SEC settlements can be substantially affected by whether the SEC credits the defendant with cooperating in the investigation. The SEC noted cooperation in 63 percent of public company and subsidiary settlements in FY 2022.


Comment: Audit committees should be aware that the risk of enforcement inquiry is rising with respect to disclosures that the SEC views as inaccurate, incomplete, or misleading. The increasing possibility of an SEC enforcement action is something that every company needs to bear in mind in connection with its disclosure and financial reporting, especially when confronted with what appear to be “close calls” or the temptation to omit or downplay unfavorable information. As the Update has observed in the past, the best protection against litigation is diligence and care in overseeing the company’s financial reporting.

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