he Securities and Exchange Commission announced that it filed 583 total enforcement actions in fiscal year 2024, while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history.

That record amount consisted of $6.1 billion in disgorgement and prejudgment interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record. Approximately 56 percent of the $8.2 billion financial remedies ordered is attributable to a monetary judgment obtained following the SEC’s jury trial win against Terraform Labs and Do Kwon, who were charged with one of the largest securities frauds in U.S. history.

The 583 enforcement actions represent a 26 percent decline in total enforcement actions compared to fiscal year 2023. Of those cases, the Commission filed 431 “stand-alone” actions, 93 “follow-on” administrative proceedings, and 59 actions against issuers who were allegedly delinquent in making required filings with the SEC.

“The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable,” said outgoing SEC Chair Gary Gensler. “As demonstrated by this year’s results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike.”

Last month Gensler announced that he would step down as chair of the SEC. President elect Donald Trump has announced that he intends to nominate former SEC Commissioner Paul Atkins, a longtime advocate of deregulation, as the next chairman of the Commission. Market watchers have said that they expect the SEC under Atkins to be far less enforcement minded.

“He has been a strong supporter of the asset management industry and sympathizes with the challenges faced by the industry trying to comply with often-ambiguous SEC rules,” said Brad Bondi, global co-chair of the investigations and white-collar defense practice at Paul Hastings, who served as counsel to Atkins during his time at the SEC.

Protecting Investors

“In fiscal year 2024, the Division continued to vigorously enforce the federal securities laws by recommending to the Commission high-impact enforcement actions addressing noncompliance throughout the securities industry and resulting in robust financial remedies,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “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, but that shined a spotlight on potentially problematic conduct. All of this adds up to protecting innumerable investors and promoting trust in our capital markets.”

In addition, in fiscal year 2024, the SEC obtained orders barring 124 individuals from serving as officers and directors of public companies, the second-highest number of such bars obtained in a decade.

In fiscal year 2024, the SEC distributed $345 million to harmed investors, marking more than $2.7 billion returned to investors since the start of fiscal year 2021. The SEC also received 45,130 tips, complaints, and referrals in fiscal year 2024, the most ever received in one year, including more than 24,000 whistleblower tips. The SEC issued whistleblower awards totaling $255 million.

Securing Credit for Self Reporting and Cooperation

In fiscal year 2024, public companies, investment advisers, and broker-dealers self-reported or remediated securities law violations or otherwise cooperated meaningfully with the Division’s investigations, answering the Division’s call to practice a culture of proactive compliance. In response, the Division recommended, and the Commission approved, resolutions imposing reduced civil penalties or even no civil penalties, including in cases involving very large firms.

To help promote investor trust in the securities market, the Division continued and commenced a number of proactive initiatives to address issues of widespread noncompliance, including the following:

Off-Channel Communications

The Division continued its initiative to ensure that regulated entities, including broker-dealers, investment advisers, and credit ratings agencies, comply with the recordkeeping requirements of the federal securities laws. Compliance with those requirements is essential to investor protection and well-functioning markets. In fiscal year 2024, the Commission brought recordkeeping cases resulting in more than $600 million in civil penalties against more than 70 firms, including the Commission’s first cases charging recordkeeping violations against municipal advisors. Since December 2021, the initiative has resulted in charges against more than 100 firms and more than $2 billion in penalties.

Marketing Rule

The Enforcement Division’s ongoing initiative investigating non-compliance with the Marketing Rule resulted in settled charges against more than a dozen investment advisers. The firms were charged for advertising hypothetical performance to the general public without adopting and implementing policies and procedures reasonably designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of the advertisement’s intended audience; using untrue or unsubstantiated statements of material fact and/or testimonials, endorsements, or third-party ratings that lacked required disclosures; and advertising misleading performance that was not fair and balanced.

Whistleblower Protection Cases

In fiscal year 2024, the Division recommended, and the Commission authorized, a series of settled enforcement actions to address violations of the Dodd-Frank whistleblower protection rule, which prohibits market participants from taking any action to impede would-be whistleblowers from contacting the SEC, including where firms purported to limit customers’ ability to voluntarily contact the SEC or required employees to waive the right to a possible whistleblower monetary award. The actions included an $18 million civil penalty against J.P. Morgan, the largest penalty on record for a standalone violation of the whistleblower protection rule.

Disclosures of Holdings and Transactions by Insiders and Investment Managers

The federal securities laws require certain insiders and market participants to disclose their securities holdings and transactions. Compliance with those laws is essential for investors to make informed investment decisions.

In fiscal year 2024, the SEC announced settled charges against more than two dozen entities and individuals for failures to timely report information about their holdings and transactions in public company stock or for contributing to filing failures by their officers and directors. The SEC also settled charges against 11 institutional investment managers for failing to disclose certain securities holdings in reports they were required to file because they have discretion over more than $100 million in certain securities.

Robust Financial Remedies

In fiscal year 2024, the Division’s investigations led to orders imposing robust financial remedies in litigated and settled matters.

For example, after a jury verdict finding Terraform Labs and founder Do Kwon liable for fraud, defendants agreed to a final judgment ordering them to pay more than $4.5 billion in disgorgement, prejudgment interest, and civil penalties, the highest remedies ever obtained by the SEC following a trial.

In addition, the Commission filed settled charges with strong financial remedies against:

• Morgan Stanley for a multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as “block trades.”  The firm agreed to pay approximately $166 million in disgorgement and prejudgment interest and an $83 million civil penalty to resolve the SEC’s charges;
• FirstEnergy Corp. for a multi-year political corruption scheme in which FirstEnergy and affiliates made payments to an entity controlled by a state legislator in exchange for official action benefitting FirstEnergy. FirstEnergy agreed to a pay a $100 million civil penalty to resolve the SEC’s charges;
• SAP for violations of the Foreign Corrupt Practices Act arising out of bribery schemes in South Africa, Malawi, Kenya, Tanzania, Ghana, Indonesia, and Azerbaijan. The company agreed to pay disgorgement and prejudgment interest of more than $98 million to resolve the SEC’s charges. Up to $59 million will be offset by payments from SAP to the South African government in connection with its parallel investigations into the same conduct; and
• Advisory firm Macquarie for overvaluing approximately 4,900 largely illiquid collateralized mortgage obligations held in 20 advisory accounts and for executing hundreds of cross trades between advisory clients that favored certain clients over others. The firm agreed to pay disgorgement and prejudgment interest of $9.8 million and a $70 million civil penalty to resolve the SEC’s charges.

Major Fraud

In fiscal year 2024, the Division continued to focus on holding individuals and entities accountable for preying on investors.

• The Division’s investigations led to charges alleging frauds ranging from Ponzi schemes targeting specific communities to billion dollar frauds with thousands of victims;
• The SEC charged Xue Lee (aka Sam Lee) and Brenda Chunga (aka Bitcoin Beautee) for their involvement in an allegedly fraudulent crypto asset pyramid scheme known as HyperFund that raised more than $1.7 billion from investors worldwide;
• The SEC charged Cynthia and Eddy Petion and their company, NovaTech Ltd., for allegedly operating a fraudulent scheme that raised more than $650 million in crypto assets from more than 200,000 investors worldwide;
• The SEC charged five unregistered brokers and their companies in connection with an alleged pre-IPO fraud scheme that raised at least $528 million from more than 4,000 investors around the world; and
• The SEC charged Abraham Shafi, the founder and former CEO of Get Together Inc., a privately held social media startup known as “IRL,” for raising approximately $170 million from investors by allegedly fraudulently portraying IRL as a viral social media platform that organically attracted the vast majority of its purported 12 million users.

Emerging Technologies and Emerging Risks

Fiscal year 2024 saw heightened investor risk from emerging technologies and cybersecurity incidents and from market participants using social media to exploit elevated investor interest in emerging investment products and strategies. The Division kept pace, investigating noncompliance and false or misleading disclosures involving artificial intelligence, social media, cybersecurity, crypto, and more.

Artificial Intelligence

• The SEC charged QZ Asset Management for allegedly falsely claiming that it would use its proprietary AI-based technology to help generate extraordinary weekly returns while promising “100%” protection for client funds; and
• The SEC settled charges against investment advisers Delphia and Global Predictions with making false and misleading statements about their purported use of AI in their investment process.

Relationship Investment Scams

• The SEC charged multiple entities and individuals in connection with two relationship investment scams involving fake crypto asset trading platforms NanoBit and CoinW6. The SEC’s two complaints allege that the defendants solicited investors via social media apps, lied to them to gain their trust and confidence, and then stole their money. These charges are the SEC’s first enforcement actions alleging these types of scams.

Cybersecurity

• The SEC settled charges against The Intercontinental Exchange, Inc. and nine wholly owned subsidiaries, including the New York Stock Exchange, for failing to timely inform the SEC of a cyber intrusion as required by Regulation Systems Compliance and Integrity;
• The SEC settled charges against transfer agent Equiniti Trust Company LLC, formerly known as American Stock Transfer & Trust Company LLC, for failures to ensure that client securities and funds were protected against theft or misuse, which led to losses of millions of dollars in client funds; and
• The SEC settled charges against R.R. Donnelley & Sons for disclosure and internal control failures relating to cybersecurity incidents.

Crypto

• The SEC settled charges against Silvergate Capital for false and misleading disclosures to investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of crypto customers, including FTX, by its wholly owned subsidiary, Silvergate Bank; and
• The SEC settled charges against Barnbridge DAO, a purportedly decentralized autonomous organization, for failing to register its offer and sale of structured crypto assets offered and sold as securities.

Individual Accountability

Charging individuals for securities law violations, where appropriate, is essential for accountability and deterrence and for enhancing public trust in the markets. Fiscal year 2024 enforcement actions against individuals included the following:

• Following a jury verdict finding Terraform Labs and founder Do Kwon liable for fraud, Do Kwon agreed to a final judgment ordering him to pay financial remedies of more than $200 million and imposing an officer and director bar.
• The former CEO and former Chief Risk Officer of Silvergate Capital settled charges for misleading investors about the strength of the compliance program and the monitoring of crypto customers by Silvergate’s wholly owned subsidiary. The individuals agreed to five-year officer-and-director bars and civil penalties of $1 million and $250,000 respectively, as part of the resolution. In addition, the SEC charged the former CFO with misleading investors about the company’s losses from expected securities sales.
• The CEO of formerly registered investment adviser Mass Ave settled charges arising out of false and misleading statements about Mass Ave’s flagship fund. To settle the SEC’s charges, the CEO, who is also the chief investment officer and portfolio manager at MassAve, agreed to pay a $250,000 civil penalty and was suspended for 12 months from industry-related work.
• The former head of Morgan Stanley’s equity syndicate desk settled charges connected to a multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as “block trades.” As part of the resolution, the former head agreed to an order requiring him to pay a $250,000 civil penalty and imposing associational, penny stock, and supervisory bars.
• The SEC permanently suspended Benjamin Borgers, the managing partner of audit firm BF Borgers from appearing and practicing as an accountant before the Commission as part of a resolution of an alleged fraud affecting hundreds of SEC filings. Borgers also agreed to pay a $2 million civil penalty as part of the resolution;
• The former CEO and former Senior Vice President of Cassava Sciences agreed to be subject to officer-and-director bars of three and five years, respectively, to settle charges related to misleading statements about the results of a clinical trial for the company’s purported therapeutic for the treatment of Alzheimer’s disease. They also agreed to pay civil penalties of $175,000 and $85,000, respectively; and
• The SEC charged now-defunct digital pharmacy startup Medly Health’s former CEO, former CFO, and former head of RX Operations with fraudulently overstating Medly’s revenue in connection with capital raising efforts that netted the company more than $170 million.

Public Company Misstatements

It is foundational to the proper operation of the securities markets that public companies provide materially accurate information to investors. In fiscal year 2024, the Division investigated misstatements by public companies leading to a number of enforcement actions, including:

• Settled charges against Cassava Sciences for misleading statements about the results of a Phase 2 clinical trial for its purported therapeutic for the treatment of Alzheimer’s disease;
• Settled charges against Ideanomics for misleading statements about the company’s financial performance; and
• Charges against former executives of Kubient for their alleged roles in a scheme in which the company allegedly overstated and misrepresented its revenue in connection with public stock offerings.

Safeguarding Material Nonpublic Information

The Division investigated market abuse and potential abuse of material nonpublic information (MNPI) in fiscal year 2024, including by using advanced data analytics and technology. The Division’s investigations resulted in enforcement actions addressing a range of violations, including:

• Settled charges against Morgan Stanley and the former head of its equity syndicate desk with a multi-year fraud involving the disclosure of confidential information about the sale of large quantities of stock known as “block trades;”
• Settled charges against several investment advisers for failing to establish, maintain, or enforce written policies and procedures reasonably designed to prevent the misuse of MNPI;
• Charges against former investment adviser representatives for conducting multi-year cherry-picking schemes that allegedly defrauded their clients out of millions of dollars;
• Charges against a U.K. citizen for allegedly hacking into the computer systems of public companies to obtain material nonpublic information and using that information to make millions of dollars in illicit profits;
• Charges against three individuals for allegedly perpetrating a multi-year $2 million “free-riding” scheme, which is when a brokerage customer buys and sells securities without having the funds to pay for the trading; and Settled insider trading charges against a founder and former chair of a public company

The SEC’s 2024 fiscal year includes the period from October 1, 2023 to September 30, 2024.  

Joseph McCafferty is editor & publisher of Compliance Chief 360°

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nvesco Advisers is paying the price for misleading clients and investors about how much of its assets were truly aligned with environmental, social, and governance principles. The Atlanta-based investment firm has agreed to pay a $17.5 million civil penalty to settle the Securities and Exchange Commission’s charges that it issued misleading statements on ESG.

According to the SEC’s order, from 2020 to 2022, Invesco told clients and stated in marketing materials that between 70 and 94 percent of its parent company’s assets under management were “ESG integrated.” However, in reality, these percentages included a substantial amount of assets that were held in passive ETFs that did not consider ESG factors in investment decisions. Furthermore, the SEC’s order found that Invesco lacked any written policy defining ESG integration.

“As stated in the order, Invesco saw commercial value in claiming that a high percentage of company-wide assets were ESG integrated. But saying it doesn’t make it so,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, in a statement. “Companies should be straightforward with their clients and investors rather than seeking to capitalize on investing trends and buzzwords.”

The order charges Invesco with willfully violating the Investment Advisers Act of 1940. Without admitting or denying the order’s findings, Invesco agreed to cease and desist from violations of the charged provisions, be censured, and pay the aforementioned $17.5 million civil penalty.  

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he Securities and Exchange Commission has charged four public companies with making materially misleading disclosures regarding cybersecurity risks and intrusions. The charges against the four companies—Unisys, Avaya, Check Point Software, and Mimecast—result from an investigation involving public companies impacted by the compromise of SolarWinds’ Orion software.

The SEC also charged Unisys with disclosure controls and procedures violations. The companies agreed to pay the following civil penalties to settle the SEC’s charges:

• Unisys will pay a $4 million civil penalty;
• Avaya. will pay a $1 million civil penalty;
• Check Point will pay a $995,000 civil penalty; and
• Mimecast will pay a $990,000 civil penalty.

“As today’s enforcement actions reflect, while public companies may become targets of cyberattacks, it is incumbent upon them to not further victimize their shareholders or other members of the investing public by providing misleading disclosures about the cybersecurity incidents they have encountered,” said Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement. “Here, the SEC’s orders find that these companies provided misleading disclosures about the incidents at issue, leaving investors in the dark about the true scope of the incidents.”

According to the SEC’s orders, Unisys, Avaya, and Check Point learned in 2020, and Mimecast learned in 2021, that the threat actor likely behind the SolarWinds Orion hack had accessed their systems without authorization, but each negligently minimized its cybersecurity incident in its public disclosures.

The SEC’s order against Unisys finds that the company described its risks from cybersecurity events as hypothetical despite knowing that it had experienced two SolarWinds-related intrusions involving exfiltration of gigabytes of data. The order also finds that these materially misleading disclosures resulted in part from Unisys’ deficient disclosure controls.

The SEC’s order against Avaya finds that it stated that the threat actor had accessed a “limited number of [the] Company’s email messages,” when Avaya knew the threat actor had also accessed at least 145 files in its cloud file sharing environment.

The SEC’s order against Check Point finds that it knew of the intrusion but described cyber intrusions and risks from them in generic terms. The order charging Mimecast finds that the company minimized the attack by failing to disclose the nature of the code the threat actor exfiltrated and the quantity of encrypted credentials the threat actor accessed.

Don’t Downplay the Seriousness of a Breach

“Downplaying the extent of a material cybersecurity breach is a bad strategy,” said Jorge Tenreiro, acting chief of the Crypto Assets and Cyber Unit. “In two of these cases, the relevant cybersecurity risk factors were framed hypothetically or generically when the companies knew the warned of risks had already materialized.  The federal securities laws prohibit half-truths, and there is no exception for statements in risk-factor disclosures.”

The SEC’s orders find that each company violated certain applicable provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and related rules. Without admitting or denying the SEC’s findings, each company agreed to cease and desist from future violations of the charged provisions and to pay the penalties described above. Each company cooperated during the investigation, including by voluntarily providing analyses or presentations that helped expedite the staff’s investigation and by voluntarily taking steps to enhance its cybersecurity controls.  

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he Securities and Exchange Commission’s Division of Examinations has released its 2025 examination priorities. This year’s examinations will prioritize perennial and emerging risk areas, such as fiduciary duty, standards of conduct, cybersecurity, and artificial intelligence. For fiscal year 2025, in addition to conducting examinations in core areas such as disclosures and governance practices, the Division will also examine for compliance with new rules, the use of emerging technologies, and the soundness of controls intended to protect investor information, records, and assets.

The Division publishes its examination priorities annually to inform investors and registrants of potential risks in the U.S. capital markets and to make them aware of the examination topics that the Division plans to focus on in the new fiscal year.

“The Division of Examinations 2025 priorities enhance trust in our ever-evolving markets,” said SEC Chair Gary Gensler. “In examining for compliance with our time-tested rules, the Division plays a critical role in protecting investors and facilitating capital formation. Working with registrants to understand the rules helps ensure that markets work for investors and issuers alike.”

The Division examines SEC-registered investment advisers, investment companies, broker-dealers, clearing agencies, and self-regulatory organizations, among others, for compliance with federal securities laws. The Division prioritizes examinations of the practices, products, and services that were found, through a risk-based assessment, to present a heightened risk to investors or the integrity of the U.S. capital markets, it said in a statement. The annual publication of the examination priorities furthers the SEC’s mission and aligns with the Division’s four pillars to promote and improve compliance, prevent fraud, monitor risk, and inform policy, the Commission said.

“Our 2025 examination priorities identify the key areas of potentially increased risks and related harm for investors,” said Keith Cassidy, acting director of the division of examinations. “We hope that registrants will evaluate their compliance programs in the areas we identified and make the changes necessary to protect investors and maintain fair and orderly capital markets.”

The 2025 examination priorities cover a broad landscape of potential risks to investors that firms should consider as they review and strengthen their compliance programs. They are not, however, an exhaustive list of all the areas the Division will focus on in the upcoming year, the SEC noted. The scope of any examination includes analysis of other risk factors such as an entity’s history, operations, and products and services.  

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According to the SEC’s order, in September 2022, an unknown third-party hijacked a pre-existing email chain between what was then American Stock Transfer and a U.S.-based public-issuer client. The hacker, pretending to be an employee at the issuer, then instructed American Stock Transfer to issue millions of new shares of the issuer, liquidate those shares, and send the proceeds to an overseas bank. As a result,  American Stock Transfer followed these instructions and transferred approximately $4.78 million to bank accounts located in Hong Kong, of which American Stock Transfer was able to recover approximately $1 million.

In addition, the SEC found, around April 2023, in an unrelated incident, someone used stolen Social Security numbers of certain American Stock Transfer accountholders to create fake accounts that were automatically linked by American Stock Transfer to real client accounts based solely on the matching Social Security numbers, even though the names and other personal information associated with the fraudulent accounts did not match those of the legitimate accounts. This allowed the thief to liquidate securities held in the legitimate accounts and transfer a total of approximately $1.9 million in proceeds to external bank accounts, of which American Stock Transfer was able to recover approximately $1.6 million.

“American Stock Transfer failed to provide the safeguards necessary to protect its clients’ funds and securities from the types of cyber intrusions that have become a near-constant threat to companies and the markets,” said Monique Winkler, Director of the SEC’s San Francisco Regional Office. “As threat actors become more sophisticated in the cyber space, transfer agents must act to implement and maintain effective safeguards and procedures around client assets.”

In finding that Equiniti failed to assure that: (i) all securities in its custody or possession related to its transfer agent activities were held in safekeeping and were handled in a manner reasonably free from risk of theft, loss or destruction and (ii) all funds in it possession were protected against misuse, the SEC concluded that that the transfer agent violatedSection 17A(d) of the Securities Exchange Act of 1934 and Rule 17Ad-12. In addition to the civil penalty referenced above, Equiniti agreed to a cease-and-desist order and censure.  

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The SEC announced that the firms admitted their failures, acknowledged that their conduct violated numerous recordkeeping provisions of the federal securities laws, agreed to pay combined $392.75 million in fines, and have begun implementing improvements to their compliance policies and procedures to address these violations. The charged firms included well known banks such as RBC Capital Markets, BNY Mellon, TD Securities, Edward D. Jones, and many more.

These charges represent the government’s ongoing mission of suppressing off-channel communications between broker-dealers and investment advisors. “As today’s enforcement actions against more than two dozen firms reflect, we remain committed to ensuring compliance with the books and records requirements of the federal securities laws, which are essential to investor protection and well-functioning markets,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “Among this group of firms, there are several that differentiated themselves by self-reporting prior to the staff’s investigation, demonstrating once again the real benefits of proactive cooperation.”

Each of the SEC’s investigations uncovered longstanding use of unapproved off-channel communications at these firms. As described in the SEC’s orders, the firms admitted that their employees sent and received off-channel communications that were records required to be maintained under the securities laws. The failure to maintain and preserve required records deprives the SEC of these communications in its investigations. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.

The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both. The firms were also each charged with failing to reasonably supervise their personnel with a view to preventing and detecting those violations.

CFTC Fines Banks for Failing to Uphold Recordkeeping Requirements

The CFTC fined multiple banks for similar recordkeeping violations. The Commission discovered that multiple financial institutions did not stop their employees from communicating through off-channel platforms such as IMessage or WhatsApp. The CFTC additionally found that the firms did not preserve the communications which added onto its violations

According to the CFTC, some firms, such as Truist Bank self-reported their violations which was heavily accounted for when determining their respective penalties. “In responding to an industry-wide and consequential problem, Truist set itself apart from the more than 20 other registrants the CFTC brought actions against for use of unapproved communications methods. How? Truist made the decision to self-report to the Division of Enforcement it had serious recordkeeping and supervisory failures. It is the only registrant to do so,” said Director of Enforcement Ian McGinley.

“Truist’s decision to self-report, cooperate, remediate, and be held accountable allowed it to benefit in the form of a substantially reduced penalty,” Director McGinley added. “At the same time, the CFTC’s message remains clear—recordkeeping and supervision requirements are fundamental, and registrants that fail to comply with these core obligations do so at their own peril.”

These charges once again display the government’s mission in combatting off-channel communications among broker-dealers and investment advisors. This is not the first time that they have gone after broker-dealers and investment advisors for their use of off-channel communications as a means to do business. In August 2023, the SEC and CFTC collected $555 million in penalties for recordkeeping failures and in 2022 the agencies collected $1.8 billion for similar conduct.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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The company said that it expects an administrative order from the SEC to resolve previously disclosed criminal and civil investigations into “improper payments made by Raytheon Company and its joint venture, Thales-Raytheon Systems, in connection with certain Middle East contracts since 2012.”

The company also expects to enter into the deferred agreement and False Claims Act settlement with the DoJ to resolve investigations regarding defective pricing claims for “specific legacy Raytheon Company contracts from 2011 to 2013 and in 2017.”

“The charge also includes the impact of certain voluntarily disclosed export controls violations primarily identified in connection with the integration of Rockwell Collins and, to a lesser extent, Raytheon Company into RTX, including certain violations expected to be resolved pursuant to a consent agreement with the Department of State,” according to RTX’s financial disclosure.

It was reported in 2021 that the U.S. was investigating whether payments made by Raytheon to a consultant for the Qatar Armed Forces were actually bribes intended for a member of the ruling royal family.

“While the financial impact of these items is above what we had previously reserved, we believe the provisions we have taken put these issues behind us financially, and we will continue to cooperate with the government and external monitors as we move forward,” Neil Mitchill Jr., RTX’s chief financial officer, said on an earnings call. The company has described the bribery and contract pricing matters as legacy issues as it merged with United Technologies in 2020.

RTX said that prosecutors will seek to dismiss charges if the company adheres to the deferred prosecution agreements for a three-year period. These agreement mandates the company to enhance its compliance programs and implement other measures to prevent future violations.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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The ISC’s objective is to strengthen the cohesion between federal, state, and local agencies, enhance opportunities to collaborate on cases to protect investors, provide insight and guidance across the ecosystem to those who may not frequently operate in this space, and create an outlet to combat financial fraud.

The ISC launched with representatives from more than 100 departments and agencies, including federal agencies, state offices of attorneys general and state police, and local police departments and sheriff’s offices.

“The Interagency Securities Council will help front line investigators stay abreast of emerging threats and fact patterns to protect their communities from securities fraud, while supporting the efforts of federal, state, and local law enforcement partners across the country,” said Gurbir Grewal, Chair of the ISC and Director of the SEC’s Division of Enforcement.

“As financial frauds become more complex, investors benefit from the government – at all levels – working together and sharing information to protect and inform the public,” said Cristina Martin Firvida, the SEC’s Investor Advocate.

About the Interagency Securities Council

The ISC is open to law enforcement and regulatory agencies, and members participate in discussions with experts on emerging threats, hear from investigators conducting and supervising investigations, and explore case study examples of agencies employing innovative approaches to combat financial fraud. The ISC also serves as an opportunity to connect and share information with the larger law enforcement community that less frequently deals with securities law violations, such as police/sheriff departments and tribal- and military-community law enforcement.  

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When the SEC seeks to punish those who commit civil crimes, such penalties are enforced exclusively in fines. The Court reasoned that since “relief is legal in nature when it is designed to punish or deter the wrongdoer rather than solely to ‘restore the status quo,’ such fines can only be enforced in courts of law.”

The SEC argued that the “public rights” exception to the Seventh Amendment applied, allowing Congress to grant the right to adjudicate a case to an agency without a jury. To fall under this exception depended on whether the SEC was enforcing “public rights” belonging to the government or seeking remedies similar to those sought by private parties. Ultimately, the Court decided that securities fraud did not trigger the exception and as a result meant that Congress could not delegate adjudication rights to the SEC.

Before this ruling took place, the SEC was able to initiate enforcement actions before administrative law judges, who rendered a final decision regarding the case at hand. Now, if the SEC seeks civil penalties like fraud, it must do so in a federal court. “Now the entire federal government is forced to play by the same litigation rules as everyone else—in real courts before real judges, just as our Founders intended,” S. Michael McColloch, Jarksey’s attorney, said.

Implications of the Court’s Ruling

Although this decision is a significant one, it is not unexpected. Due to its anticipation of a ruling similar to this one, the SEC, in recent years, has begun to pursue enforcement actions in federal court as opposed to internal forums. “The SEC anticipated this outcome, so I don’t think the ruling marks a seismic shift,” said Allison Kernisky, a securities litigator at Holland & Knight.

Nevertheless, this decision may potentially affect its overall success rate in securities fraud cases. Historically, the SEC has had a much higher success rate in in-house administrative proceedings, winning 90 percent of those cases compared to 69 percent in federal court. This decision is also likely to lead to an increase in the number of contested cases, rather than those settled before a complaint is filed.

The consequences from this decision will require the SEC to address the approximately 200 open administrative proceedings as well as reassess their use of in-house tribunals. Its reconsideration may result in a sense of hesitancy to use such proceedings for any enforcement actions that seeks civil penalties however, only time will tell.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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According to the SEC’s complaint, Silvergate, Lane, and Fraher misled investors in stating that Silvergate had an effective BSA/AML compliance program and conducted ongoing monitoring of its high-risk crypto customers, including FTX, in part to deny public rumors that FTX had used its accounts at Silvergate to enable FTX’s misconduct. In reality, Silvergate’s automated transaction monitoring system failed to monitor more than $1 trillion of transactions by its customers on the bank’s payments platform, the Silvergate Exchange Network.

“At all times, but especially during moments of crises, public companies and their officers must speak truthfully to the investing public. Here, we allege that Silvergate, Lane and Fraher fell not only woefully, but also fraudulently, short in that regard,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “Rather than coming clean to investors about serious deficiencies in its compliance programs in the wake of the collapse of FTX, one of Silvergate’s largest banking customers, they doubled down in a way that misled investors about the soundness of the programs. In fact, because of those deficiencies, Silvergate allegedly failed to detect nearly $9 billion in suspicious transfers among FTX and its related entities. Silvergate’s stock eventually cratered, wiping out billions in market value for investors.”

SEC Alleges Silvergate Misrepresented Its Financial Condition

The SEC’s complaint also alleges that Silvergate and Martino misrepresented the company’s bleak financial condition during a liquidity crisis and bank run following FTX’s collapse. The complaint alleges that Silvergate and Martino, in an earnings release and earnings call, understated Silvergate’s losses from expected security sales and misrepresented that it remained well-capitalized as of December 31, 2022. In March 2023, Silvergate announced it would wind down its banking operations, and its stock eventually plummeted to near $0.

The SEC charged Martino with violating certain of the antifraud and books-and-records provisions of the federal securities laws, and with aiding and abetting certain of Silvergate’s violations. The complaint also charges Silvergate, Lane, and Fraher with fraud and charges Silvergate with violating certain reporting, internal accounting controls, and books-and-records provisions.

Without admitting or denying the allegations, Silvergate agreed to a settlement ordering it to pay a $50 million civil penalty and imposing a permanent injunction to settle the charges. Lane and Fraher also settled the charges without admitting or denying the allegations, agreeing to permanent injunctions, five-year officer-and-director bars, and fines of $1 million and $250,000 respectively.

All the settlements require court approval, and Silvergate’s payment may be offset by penalties paid to the Board of Governors of the Federal Reserve System (FRB) and/or the California Department of Financial Protection and Innovation (DFPI). In parallel actions, FRB and DFPI today announced settled charges against Silvergate.  

Jacob Horowitz is a contributing editor at Compliance Chief 360° 

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