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BNA INSIGHTS: Top Ten SEC Enforcement Developments of 2012

Marc Dorfman Ellen Wheeler

By Marc Dorfman and Ellen Wheeler, Foley & Lardner LLP.

Foley & Lardner LLP represents parties who are the subject of SEC enforcement inquiries and actions, including in cases discussed in this article.

This article highlights significant developments during 2012 in the enforcement program of the U.S. Securities and Exchange Commission (“SEC”). Developments were selected because they may signal future trends or establish new legal standards.

Last year we highlighted as the Number One enforcement development of 2011 the increasing scrutiny by courts of settlements negotiated between the SEC and defendants. As we noted a year ago,

The U.S. Court of Appeals for the Second Circuit is considering an appeal by the SEC from a decision issued by U.S. District Court Judge Jed S. Rakoff rejecting a settlement negotiated by the SEC with Citigroup Capital Markets as “neither reasonable, nor fair, nor adequate, nor in the public interest” because it “asks the Court to impose substantial injunctive relief, enforced by the Court’s own contempt power, on the basis of allegations unsupported by any proven or acknowledged facts whatsoever….” The SEC has asked the Second Circuit to reject Judge Rakoff’s approach, but if its appeal is unsuccessful, the SEC will have little choice but to revisit its practices in negotiating settlements.

In some ways, during 2012, SEC Enforcement developments were reminiscent of a Beckett play, but with a new title: “Waiting for Rakoff.” The appeal to the Second Circuit from Judge Rakoff’s order declining to approve a settlement between the SEC and Citigroup remains sub judice, with the Court having finally heard oral argument on February 8, 2013. The outcome of that appeal is expected to have a significant impact on the SEC’s practices in negotiating settlements, either in confirming or limiting the use of consents which “neither admit nor deny” the SEC’s allegations.

In November 2012, the SEC announced that it had filed 734 enforcement actions in the fiscal year ending September 30 (only one fewer than the record number of proceedings instituted in the prior year).  Many of these actions are reflective of much larger societal trends. For example, this year’s Top Ten reflects the growing significance of social media and the increased globalization of markets, particularly with respect to China.


The Number One enforcement development of 2012 is the SEC’s increasing effort to hold individuals (as well as their corporate employers) accountable for violations, with occasionally mixed results. Undoubtedly in response to the clamor of media and congressional complaints that executives at banks and other financial institutions have not been held responsible for the conduct that led to the 2008 financial crisis and market collapse, the SEC heavily touted its actions against bankers and other individuals during 2012. The SEC, however, also suffered a number of setbacks in its efforts to pursue such individuals in 2012. Indeed, the SEC’s case against a midlevel Citigroup executive resulted in both a defense verdict and a public rebuke by the jury foreman that the SEC had not pursued the top executives.

The SEC and the U.S. Department of Justice are jointly responsible for enforcing the provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”). The Number Two enforcement development of 2012 is the joint release by the SEC and DOJ in November of “A Resource Guide to the U.S. Foreign Corrupt Practices Act,” a 120-page guide providing a detailed analysis of the SEC’s and DOJ’s approaches to FCPA enforcement.

The remaining Top Ten developments illustrate other significant issues and trends in the SEC enforcement program:

•  Number Three is the Supreme Court’s grant of a writ of certiorari in 2012 and decision in February 2013 holding that the five-year clock in the statute of limitations applicable to SEC claims for fraud begins when the fraud occurs, not when it is discovered.

•  The Number Four enforcement development of 2012 is the SEC’s continued aggressive pursuit of insider trading cases.

•  Number Five is the easing of the standard for aiding and abetting liability by the Second Circuit.

•  Number Six is the opening for business of the SEC’s whistleblower program.

•  Number Seven is the SEC’s pursuit of cases against officers and directors for overvaluing their firms’ assets.

•  Number Eight is the SEC’s case against a “dark pool” for not being dark enough.

•  Number Nine is the SEC’s pursuit of cases involving pre-IPO trading.

•  Number Ten is the SEC’s initiation of enforcement proceedings against China-based affiliates of U.S. accounting firms.

1. The SEC’s Increasing Pursuit of Individuals, With Mixed Results

In its press release describing its enforcement results in 2012, the SEC touted its enforcement actions against individuals accused of wrongdoing related to the financial crisis. 2 The SEC pointed out that it had filed 29 separate actions against 34 individuals, including 24 CEOs, CFOs and other senior corporate officers. Outgoing Chairman Mary L. Schapiro similarly focused on the SEC’s pursuit of individuals during her speech at the 2012 New England Securities Conference, explaining that the SEC is “determined in our pursuit of those whose actions fueled the Financial Crisis, bringing actions against over 100 individuals and firms – including more than 50 CEOs, CFOs and other senior officers, and obtaining more than $2.2 billion in monetary relief – not to mention dozens of orders barring individuals from the financial industry.”…

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