Planning Briefs

(November 3, 2020, 9:00 p.m. EDT) The Enforcement Division of the U.S. Securities and Exchange Commission released its annual report yesterday. Since it's probably not on your reading list, here are highlights investors need to know.

Policing Securities During Covid. "By mid-March, the entire Division had transitioned to mandatory telework and essentially all of our operations were conducted remotely," says Stephanie Avakian, director of the enforcement division at the SEC.

An Epidemic Of Fraud. Covid inspired a wave of investment fraud. In March and April alone, the Commission suspended trading in the securities of two dozen issuers where there were questions regarding the accuracy and adequacy of information related to COVID-19 that those issuers injected into the marketplace, including claims about potential COVID-19 treatments, the manufacture and sale of personal protection equipment, and disaster-response capabilities. All told, from mid-March through the end of the fiscal year (Sept. 30), the Division's Office of Market Intelligence triaged approximately 16,000 tips, complaints, and referrals -- a roughly 71% increase over the same time period last year -- and the Division opened more than 150 COVID-related inquiries and investigations and recommended several COVID-related fraud actions to the Commission.

A Decline In Total Actions. Understandably, total enforcement actions declined, likely due to Covid. A total of 715 enforcement actions were filed in the 12 months ended September 2020. Taking depositions, getting sworn statements, and related  legal procedures were  moved online, thereby disrupting investigations and prosecutions of securities crooks. Although total actions declined, stiffer penalties were assessed. "While the number of cases the Commission filed was down as compared to last year, the financial remedies ordered set a new high," according to Ms. Avakian's public letter.

The Bad News For Financial Consumers. A breakdown of the number and percentage of the types of actions brought in Fiscal Year 2020 is bad news for investors. The agency took enforcement actions against half as many investment advisers and mutual funds as in FY2019. The SEC data lumps together investment advisors serving  individuals with companies managing mutual funds. These are two critical  sources of financial advice  and the plunge in enforcement actions is renewed cause for concern.  Consumers saving for college education, retirement, or their heirs should be aware of the sudden plunge in policing by regulators.

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