Cornerstone Research has put out their SEC Accounting and Auditing Enforcement Activity—Year in Review: FY 2024 report [PDF] and then they put out a press release highlighting the important parts so we don’t have to spend all day reading it. Cheers.
The U.S. Securities and Exchange Commission (SEC) drastically reduced its accounting and auditing enforcement activity in fiscal year 2024, the final year of Gary Gensler’s administration, ending two consecutive years of annual increases, according to a new report from Cornerstone Research. At the same time, monetary penalties reached their highest level since 2021.
Approximately half of all actions (22) were initiated in the fourth quarter of the fiscal year, and more than one-third were initiated in September, the last month of the agency’s fiscal year.
“In addition to a decrease in enforcement activity, the SEC dismissed six administrative proceedings in FY 2024 after the U.S. Supreme Court’s decision in SEC v. Jarkesy on June 27, 2024,” said Jean-Philippe Poissant, a report coauthor and cohead of Cornerstone Research’s accounting practice. “In contrast, the SEC imposed more than $770 million in monetary penalties in FY 2024, a 32% increase from FY 2023 and the highest total since 2021.”
Jarkesy really threw a wrench in the SEC’s desire to throw big penalties at miscreants, didn’t it? SCOTUSblog explains the decision in semi-understandable-to-non-lawyers language here but the TLDR is that the highest court in the land found the SEC’s practice of imposing fines in administrative proceedings violates the Seventh Amendment “right of trial by jury.”
A few more items from Cornerstone’s handy dandy news release:
- The number of actions initiated against U.S. respondents declined by 56% in FY 2024, while those initiated against non-U.S. respondents increased by 18%.
- Actions referring to an announced restatement and/or material weakness in internal control in FY 2024 (nine) saw a 78% decline from the number of such actions in the prior two fiscal years (41).
- The number of actions alleging violations of internal accounting controls decreased to its lowest level since FY 2021.
- Non-monetary sanctions were imposed against 67% of the 33 individual respondents who settled in FY 2024.
- The SEC acknowledged that 25% (15 firms and two individuals) of the 67 respondents who settled in FY 2024 offered cooperation, undertook remedial efforts, and/or self-reported to the SEC, slightly down from 26% in FY 2023.
- There were 75 total respondents in accounting and auditing enforcement actions initiated in FY 2024, a decrease from 111 respondents in FY 2023 and below the four-year averages under both Chair Clayton (122) and Chair Gensler (90).
The SEC released its own Enforcement Greatest Hits volume in December, boasting the following:
The Securities and Exchange Commission today 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.
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, which was 14 percent less than in the prior fiscal year; 93 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders, which was 43 percent less than the prior fiscal year; and 59 actions against issuers who were allegedly delinquent in making required filings with the SEC, which represented a decrease of 51 percent.
The $8.2 billion in financial remedies 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.
As part of that settlement, crypto startup that’s now ass up Terraform agreed to pay $3,586,875,883 in disgorgement, $466,952,423 in prejudgment interest, and a $420,000,000 civil penalty. Kwon agreed to pay $110,000,000 in disgorgement and $14,320,196 in prejudgment interest on a joint and several basis with Terraform, as well as an $80,000,000 civil penalty. Good luck collecting that.
If you take Terraform out of the equation that leaves approximately $4.6 billion, slightly less than 2023’s total SEC enforcements.
Looking at the SEC’s chart of what they got people for, “securities offering” wins again:
2023’s:
Meanwhile, Acting SEC Chairman Mark Uyeda has kicked off his time in the big chair by walking back the SEC’s plan to get its claws deep into crypto. “In my view, it was a mistake for the commission to link together regulation of the Treasury markets with a heavy-handed attempt to tamp down the crypto market,” he said in remarks to the 2025 Annual Washington Conference of the Institute of International Bankers on March 10.
“[I]n light of the significant negative public comment received on the definition of exchange with respect to crypto, I have asked SEC staff for options on abandoning that part of the proposal,” he added.
