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Wall Street Fines Rose in 2018, Boosted by Foreign Bribery Cases

Wall Street Fines Rose in 2018, Boosted by Foreign Bribery Cases

WSJ Digest 20181225

Securities and Exchange Commission Levied nearly $4 billion in fines in year ended Sept.30, with total lifted by $1.7 billion fine against Brazil’s Petrobras.
WASHINGTON–Wall Street’s main regulator levied nearly $4 billion in fines related to almost 500 enforcement actions, rebounding from a year earlier when its penalty haul fell to a four-year low.
The Securities and Exchange Commission’s statistics for the fiscal year ended Sept. 30, the second year of the Trump administration, rival fines levied during the Obama administration, when the SEC cracked down on Wall Street after the financial crisis.
The SEC’s annual enforcement statistics are a closely watched indicator of its oversight of public companies, financial institutions, and stockbrokers. The figures tend to be used, particularly by Congress, as a barometer of how aggressively the SEC is policing misconduct.
The 2018 total was significantly boosted by a single $1.7 billion fine in September against Brazilian state oil company Petrobras, in a case that involved foreign-bribery allegations.
The SEC didn’t collect most of the Petrobras fine, choosing to credit the company for payment in a related class-action shareholder lawsuit and penalties paid to Brazilian authorities. The SEC also obtained a $143 million fine against Japan-based Panasonic Corp. in a case involving claims of bribery and accounting fraud.
A large share of the SEC’s penalties each year stems from a small portion of its enforcement cases. But in 2018, 45% of the SEC’s total fines came from a single case: the Petrobras settlement.
David Rosenfeld, a law professor at Northern Illinois University who previously worked for the SEC, said the annual results show the commission may be taking a lighter touch on some aspects of enforcement. “If you look at the numbers on penalties, in particular, it’s the lowest number since 2009 if you back out Petrobras.”
The SEC ended the year with a burst of activity including a $40 million settlement with Tesla Inc. and Chief Executive Elon Musk.
The regulator accused Mr. Musk of misleading shareholders by tweeting in August that he had “funding secured ” to take Tesla private. Tesla later said it wouldn’t pursue such a deal.
Although the SEC resolved the probe in under two months, the fines didn’t count for the 2018 totals because the settlement wasn’t approved by a court until October.
The SEC over the past year also brought over a dozen enforcement action involving cryptocurrencies of digital tokens, a new method of fundraising that is almost entirely independent of Wall Street, which regulators have tried to bring under their authority.
Speaking Thursday in Washington, SEC Commissioner Robert Jackson Jr. said those cases have required the agency to divert resources that would otherwise go to more traditional actions.
SEC officials have said their effectiveness shouldn’t be solely judged by how many cases they file or the value of fines they obtain in a single year. Investigations often take years, and the timing of settlements or court orders finalizing litigation is unpredictable.
“At some level, I think it’s fair to look at your activity levels and say, “are you doing your job?”” SEC enforcement co-director Steven Peikin said at a legal conference in Atlanta last week. “At the same time, focusing on those issues can drive the wrong behavior among the staff. If you want to have a high number of cases, just write parking tickets.”
The SEC has said its enforcement program was affected by a 2017 Supreme Court decision, Kokesh v. SEC, which curbed its power to require wrongdoers to give back ill-gotten gains. Regulators have said the decision walled off over$800 million in potential disgorgement that they could have obtained prior to the high court’s decision.
The SEC in 2018 brought 490 enforcement actions, up from 446 in 2017. The agency brought more than 500 cases in 2015 and 2016.
Regulators argue their activity in 2018, as measured by case load, was as high as previous years. In those prior years, the SEC’s activity was inflated by an initiative that targeted inaccurate or misleading bond documents issued by cities and other municipal subdivisions. The initiative produced over 150 actions but assessed very limited penalties against brokers and local governments that voluntarily reported misconduct to the SEC.

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Harvey Yan


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