On November 22, 2024, the Securities and Exchange Commission (the “SEC”) published its enforcement results for fiscal year of 2024. The report shows a mixed result. The SEC only brought 583 actions in FY 2024, a 26% decrease from FY 2023. However, the SEC also reported a record breaking $8.2 billion in financial remedies, the highest in SEC history. This blog post will review some key takeaways from the SEC FY 2024 report.

Enforcement Statistics

The enforcement statistics show a significant drop in SEC enforcement activities. The SEC only brought 431 standalone enforcement actions, which was 14% less than the prior fiscal year and was the lowest number in the last five fiscal years with the exception of FY 2020. The number of follow-on administrative proceedings also fell to 59, which was 43% less than the prior fiscal year and the lowest in the last five fiscal years. The SEC brought only 59 actions against issuers who were allegedly delinquent in making required filings, a 51% decrease from the last fiscal year and also the lowest in the last five fiscal years.

In foreshadowing the low number of enforcement actions, Sanjay Wadhwa, Acting Director of the Division of Enforcement, highlighted the investigations that may not result in enforcement actions – “What our numbers do not reflect, however, are countless investigations that may not have resulted in an enforcement action for evidentiary or other reasons, or where we declined to pursue an enforcement action.”

In contrast to the low enforcement actions number, the SEC obtained orders for $8.2 billion in financial remedies, the highest amount in SEC history. However, approximately 56% of the $8.2 billion financial remedies is attributable to a monetary judgment obtained in the SEC’s jury trial win against Terraform Labs and Do Kwon for defrauding investors in crypto asset securities. Director Sanjay Wadhwa commented on the high financial remedies number by pointing to the SEC’s focus on high-impact enforcement actions – “the Division continued to vigorously enforce the federal securities laws by recommending to the Commission high-impact enforcement act addressing noncompliance throughout the securities industry and resulting in robust financial remedies.”

Proactive Compliance

The FY 2024 report highlighted the efforts made by market participants in self-reporting or remedying securities law violations or otherwise cooperating with the SEC’s investigations. To credit proactive compliance, the SEC offered reduced civil penalties or no civil penalties, including in matters involving major companies. In October 2024, in an enforcement action, the SEC found that J.P. Morgan Securities LLC (JPMS) violated Regulation Best Interest.[i] The SEC, however, did not impose a civil penalty because JPMS promptly self-reported the issue to SEC staff, conducted an internal investigation, provided substantial cooperation, and voluntarily repaid impacted customers.[ii] The increased cooperation by market participants with the SEC might partly contribute to the low number of enforcement actions in FY 2024. The emphasis of proactive compliance in the report also shows the great value of cooperation with the SEC’s investigations for market participants.

Off-Channel Communications

In FY 2024, the SEC was very active in regulating compliance with the recordkeeping requirements of the federal securities laws. The recordkeeping cases in FY 2024 resulted in more than $600 million in civil penalties against more than 70 firms. Notably, the SEC brought its first cases charging recordkeeping violations against municipal advisors. In September 2024, the SEC announced charges against 12 municipal advisors for failure by the firms and their personnel to maintain and preserve certain electronic communications.[iii] The firms agreed to pay combined civil penalties of more than $1.3 million to settle.[iv] This sent a strong signal to the municipal advisors and also to all the other market participants to make sure to strictly comply with the recordkeeping requirements.

Whistleblower Protection

FY 2024 was also an active year for whistleblower protection cases. The report noted that the SEC settled a series of enforcement actions to address violations of the Dodd-Frank whistleblower protection rule. The SEC highlighted that it imposed the largest-ever $18 million civil penalty against J.P. Morgan for a standalone violation of the whistleblower protection rule. From 2020 through July 2023, JPMS regularly asked certain clients to sign a confidential release that impeded the clients from voluntarily disclosing potential violations of the federal securities laws to the SEC.[v] The SEC found the release violated the whistleblower protection rule.[vi] This hefty penalty shows the SEC’s broader efforts in regulating confidential agreements used by regulated entities to constrain clients’ or employees’ ability to contact the SEC.

Emerging Technologies and Emerging Risks

New technologies also come with new regulatory risks. In the report, The SEC highlighted its efforts in investigating various emerging risks due to emerging technologies, including artificial intelligence, relationship investment scams, cybersecurity, and crypto. It shows that the SEC continues to keep pace with the emerging technologies to deal with new regulatory challenges.

In FY 2024, the SEC tried its first crypto-related trial in SEC v. Terraform Labs. The jury found Terraform Labs and its founder Do Kwon liable for orchestrating a fraud involving crypto asset securities that led to massive investor losses.[vii] The defendants agreed to pay more than $4.5 billion in disgorgement, prejudgment interest, and civil penalties, including $200 million in remedies to be paid by Do Kwon himself.[viii] SEC Chair Gary Gensler said that “This case affirms what court after court has said: The economic realities of a product – not the labels, the spin, or the hype – determine whether it is a security under the securities laws.”[ix] Under the leadership of Chair Gensler, although the SEC has not crafted specific rules for crypto, it did not hesitate to bring cases against crypto trading platforms with a focus on the economic realities of the digital assets.

Key Takeaways

With the incoming change of administration and the new SEC Chair to be announced, the path forward for the FY 2025 is unclear. The low activity level might continue through FY 2025 due to transition. It is likely that the SEC in the coming year will not fully embrace the enforcement priorities in this year’s report. The SEC might move its focus away from off-channel regulations and crypto and refocus on traditional enforcement matters like offering fraud, insider trading, and the like.

The full press release and accompanying addendum are available here.