Securities lawyer Lawrence Bader was frustrated that it was so hard to understand the what and why of enforcement actions brought by the Securities and Exchange Commission. So Bader has created a database to analyze cases and help him and his corporate clients see a clearer picture of the SEC’s actions.
Bader, a partner in the New York office of Morvillo Abramowitz Grand Iason & Anello, so far has gathered and analyzed data for the first three quarters of 2013 [PDF]. It is, he said, the beginning of a long-term project.
The law firm said the database “allows us to sort voluminous information about SEC enforcement actions in ways that will assist us in understanding what the SEC’s enforcement priorities have been and are likely to be in the near future.”
Bader told CorpCounsel.com that the biggest shock for him concerned the 37 fraud pleadings in which the SEC alleged the size of the fraud was over $10 million. Of those, only 19 percent had companion criminal cases.
“That was the most surprising thing,” he said. “I expected when there was such a large amount of money made or lost fraudulently, that the percentage of criminal cases against the same defendant for the same conduct would be higher.”
He was also surprised that in this nine-month period the SEC brought seven municipal debt cases, and of those several were being fought out in court. “I found interesting that some municipalities are actually litigating against the SEC and not settling,” Bader said.
“I am really anxious to see what the SEC’s won-lost record is in cases that go to trial,” Bader added. “I’m also very curious to see whether the won-lost record will change depending on what court—federal district or administrative—is hearing the case. Or if the record will vary depending on the type of case. Are they more likely to win, say, insider trading cases?”
Bader said the database eventually can give practitioners a better sense of how formidable the SEC’s arsenal of trial lawyers is in different types of cases.
The analysis shows that the SEC brought 526 enforcement actions during the three quarters. He said among the early findings was that “more and more fraud cases are being filed as administrative proceedings instead of as complaints in federal court.”
The report also noted certain trends in disgorgement and civil penalties, including that “the norm is for settled insider trading cases to result in full disgorgement, pre-judgment interest and 1X the disgorgement amount in civil penalties.”
Bader’s analysis sorts data into categories, including:
- In what jurisdiction (federal or administrative) was the matter filed?
- Was the case settled at the time of the SEC filing?
- Was there a related criminal case?
- Did the SEC allege scienter in the case?
- Was a freeze order sought?
- How many alleged victims were there?
- What was the alleged dollar size of the fraud or amount of ill-gotten gains?
- What type of defendant was sued (e.g., public or private company)?
- What types of violations were alleged?
- What penalties were imposed?
- Did the SEC insist on the defendant admitting wrongdoing?
- Was there a trial?
Bader hopes eventually to use the data to make more predictions about the SEC’s future actions. But right now the report relies more on SEC officials’ speeches and certain news events.
For example, it looks at the SEC administrative proceeding brought against owner Steven Cohen for failure to supervise his beleaguered company, SAC Capital Advisors.
“Whether the Cohen case is an indication that the SEC is going to bring more enforcement cases alleging failure to supervise remains to be seen,” it states.
