The following list reflects major actions that the Enforcement Division of the United States Securities and Exchange Commission (SEC) brought in 2009–2012.
The SEC is a federal agency of the United States. It holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States.A-Z Index of U.S. Government Departments and Agencies USA.gov
The Enforcement Division works with the SEC's other three divisions, and other Commission offices, to investigate violations of the securities laws and regulations and to bring actions against alleged violators. The SEC generally conducts investigations in private. The SEC's staff may seek voluntary production of documents and testimony, or may seek a formal order of investigation from the SEC, which allows the staff to compel the production of documents and witness testimony. The SEC can bring a civil action in a U.S. District Court, or an administrative proceeding which is heard by an independent administrative law judge (ALJ). The SEC does not have criminal authority, but may refer matters to state and federal prosecutors. The director of the SEC's Enforcement Division Robert Khuzami left the office in February 2013.
List
2009 In June 2009, the SEC sued Angelo Mozilo, former CEO of mortgage lender Countrywide Financial, and two other former officers, charging that they misled investors about the quality of Countrywide's loans while knowing the company was fueling its growth by letting its underwriting guidelines deteriorate and originating a growing number of risky subprime loans. In October 2010, the SEC settled the lawsuit and Mozilo was required to pay a fraction of the $521.5 million he had earned, just $67.5 million in penalties and disgorgement.Gretchen Morgenson, "Lending Magnate Settles Fraud Case" The New York Times (October 15, 2010)Edvard Pettersson, "Countrywide’s Mozilo Settles for $67.5 Million Over SEC Claims" BusinessWeek (October 16, 2010) In August 2009, the SEC filed a suit against Bank of America, alleging that the bank failed to disclose $3.6 billion in bonuses that Merrill Lynch paid its employees."SEC Charges Bank of America for Failing to Disclose Merrill Lynch Bonus Payments" SEC Litigation Release No. 21164 (August 3, 2009) In January 2010, the SEC filed another suit against the bank, alleging it failed to disclose extraordinary fourth-quarter 2008 losses at Merrill Lynch prior to a December 5, 2008 shareholder vote to approve a merger between it and Merrill Lynch. In February 2010, Jed S. Rakoff, a federal judge derided, but approved a settlement to resolve the lawsuits, having rejected a previous settlement for $33 million as too small. He called the new agreement "inadequate and misguided" because the penalties were "very modest".Zachary A. Goldfarb, "Judge criticizes, but approves, settlement With Bank of America" The Washington Post (February 23, 2010) In October 2009, relying on informants and wiretaps, Raj Rajaratnam and his hedge fund, Galleon Group, were charged with an insider trading scheme that generated more than $25 million in illicit gains. Six others involved in the scheme were also charged, including senior executives at IBM, Intel and McKinsey & Company."SEC Charges Billionaire Hedge Fund Manager Raj Rajaratnam With Insider Trading" SEC Litigation Release No. 21255 (October 16, 2009)"Galleon Case Ushers in Wiretaps for Financial Crimes (Update 1)" Bloomberg News (October 17, 2009) Overall, the SEC in the Galleon series of cases has charged 29 defendants for widespread and repeated insider trading in the securities of more than 15 publicly traded companies, generating illicit profits or losses avoided of more than $90 million. The investigation involves cash payments by Rajaratnam and Galleon in exchange for material nonpublic information, and the investigation has ensnared corporate executives, consultants, rating agency personnel, proprietary traders, hedge fund executives, and public relations personnel. Rajaratnam was sentenced to 11 years in prison in the parallel criminal case, and the court entered a final judgment in the SEC civil case holding him liable for a civil penalty of $92.8 million, representing the largest penalty ever assessed against an individual in an SEC insider trading case."SEC Obtains Record $92.8 Million Penalty Against Raj Rajaratnam" SEC Release No. 2011-233 (November 8, 2011)"SEC Charges Billionaire Hedge Fund Manager Raj Rajaratnam With Insider Trading; High-Ranking Corporate Executives Also Charged in Scheme That Generated More Than $25 Million in Illicit Gains" SEC Release No. 2009-221 (October 16, 2009) In December 2009, three former executives of New Century Financial Corporation were charged with conspiring to mislead investors by not disclosing dramatic increases in the rate of borrowers who were defaulting almost immediately on their loans.Zachary A Goldfarb, "SEC charges former New Century Financial executives with fraud; Subprime lender's collapse helped trigger financial crisis" The Washington Post (December 8, 2009)
2010 In April 2010, the SEC filed a suit against Goldman Sachs and one of its vice presidents, Fabrice Tourre, alleging that the firm misled investors with respect to a subprime mortgage product. The SEC charged that Goldman and Tourre did not inform clients that what they bought was crafted in part by hedge fund manager John Paulson, who was betting the product would fail. In July 2010, Goldman Sachs agreed to pay $550 million to settle the case, among the largest penalties ever assessed in the 76-year history of the SEC, although just 1% of Goldman's market value at the time and 2% of its cash balance in March 2010, and considered to be a "slap on the wrist".Sewell Chan and Louise Story, "Goldman Pays $550 Million to Settle Fraud Case" The New York Times (July 15, 2010) The penalties prompted a sigh of relief from Goldman and Wall Street.Max Abelson, "Wall Street's Wrist Slap" The New York Observer (July 20, 2010) In announcing the settlement, Robert Khuzami, current director of the Enforcement Division, twice referred to it as "more than half a billion dollars", but Michael J. Driscoll, a professor and former senior managing director at Bear Stearns called it "a steal". A former SEC commissioner, Paul Atkins, said he was "embarrassed, as an American," describing the suit as "basically playing for headlines with very little substance". Eliot Spitzer said Goldman's reaction was "OK, we'll pay you $550 million to settle the Abacus case — that's a small price to pay for the $12.9 billion we got for the AIG bailout."Matt Taibbi, "The People vs. Goldman Sachs" Rolling Stone (May 11, 2011) Khuzami states that the penalty paid by Goldman Sachs ($535 million) was "30 to 40 times" what the firm hoped to earn from the Abacus deal ($15 million), and such a significant penalty sends a "cold, hard and sharp" message to Wall Street and risk managers that they better think twice before undertaking transactions that violate the law."SEC Enforcement Chief on This Week's Newsmakers" C-SPAN National Cable Satellite Corporation (June 3, 2012) In July 2010, Citigroup, with a market cap of $120 billion, agreed to pay a $75 million penalty"Citigroup Settles Subprime Charges" New York Magazine (July 29, 2010) to the SEC for its failure to adequately disclose its exposure to subprime mortgage debt. Citigroup advised investors it held $13 billion in subprime investments when in fact it was more than $50 billion. Fines for misconduct were also assessed against the former chief financial officer, Gary Crittenden, and director of investor relations, Arthur Tildesley."SEC Charges Citigroup and Two Executives for Misleading Investors About Exposure to Subprime Mortgage Assets: Citigroup Agrees to Pay $75 Million Penalty" U.S. Securities and Exchange Commission Press Release (July 29, 2010)Edward Wyatt, "Judge Accepts Citigroup's Settlement With SEC" The New York Times (September 24, 2010) In September 2010, John Flannery, a former chief investment officer of State Street Bank & Trust Company, and James Hopkins, a former product engineer there, were charged with misleading investors about the bank's exposure to subprime investments. Earlier in the year, the SEC announced a settlement in which State Street agreed to pay $313 million in connection with the charges."SEC Charges State Street for Misleading Investors About Sub-Prime Mortgage Investments" National Mortgage Professional Magazine (February 5, 2010)"SEC Charges Two State Street Employees for Misleading Sub-Prime Mortgage Information" National Mortgage Professional Magazine (September 30, 2010) In October 2010, the SEC charged two hedge fund portfolio managers and their investment advisory businesses, Palisades Asset Management, LLC with overvaluing illiquid fund assets they placed in a "side pocket," misappropriating investor assets, and making material misrepresentations in connection with a securities offering."SEC Charges Georgia Based Hedge Fund Managers With Fraud in Valuing a "Side Pocket" and Theft of Investor Assets" SEC Release No. 2010-199 (October 19, 2010) In December 2010, the SEC, the Department of Justice and other federal and state agencies announced the results of "Operation Broken Trust", a coordinated effort by the Financial Fraud Enforcement Task Force to target investment fraud. The operation resulted in prosecutions against 310 criminal defendants involving $8.3 billion in losses and civil actions against 189 defendants involving $2.1 billion in losses for fraud schemes that victimized more than 120,000 people throughout the country."Financial Fraud Enforcement Task Force Announces Regional Results of 'Operation Broken Trust' Targeting Investment Fraud" Department of Justice, Office of Public Affairs press release (December 6, 2010)
2011 In FY 2011, the Enforcement Division filed 735 actions, an 8.6% increase over FY 2010 and more than any other year in SEC history. It also obtained $2.8 billion in penalties and disgorgement."SEC Enforcement Division Produces Record Results in Safeguarding Investors and Markets; Agency’s Fiscal Year Totals Show Most Enforcement Actions Filed in Single Year" SEC Release No. 2011-234 (November 9, 2011) More significantly, the filed actions involve many highly complex markets, products and transactions, as well as charges against a significant number of individuals. One commentator noted that despite budget and other restraints, the SEC has recently "had a string of successes," and has made progress "despite every disadvantage".Devin Leonard, “Rajaratnam Case Shows Outmanned, Outgunned SEC on a Roll” Business Week (April 19, 2012)
A sampling of FY 2011 and 2012 cases are set forth below. In January 2011, the SEC charged Merrill Lynch with fraud for misusing customer order information to place proprietary trades for the firm and for charging customer undisclosed trading fees."SEC Charges Merrill Lynch for Misusing Customer Order Information and Charging Undisclosed Trading Fees" SEC Release No. 2011-22 (January 25, 2011) Also in January 2011, the SEC charged two Charles Schwab & Co. entities and two executives for failing to disclose the risks of investing in the YieldPlus fund, including its over-concentration in mortgage assets and that it was not, as Schwab advertised, a cash alternative that had only slightly higher risk than a money market fund."SEC Charges Schwab Entities and Two Executives With Making Misleading Statements; Schwab Entities to Pay More Than $118 Million to Settle SEC Charges" SEC Release 2011-7 (January 11, 2011)