U.S. Securities and Exchange Commission building in Washington, D.C.

The U.S. Securities and Exchange Commission filed only 15 new enforcement actions against public companies and their subsidiaries in the first half of fiscal year 2018—the lowest semiannual in five years, new figures show.

The trend was part of a report, “SEC Enforcement Activity: Public Companies and Subsidiaries—Midyear FY 2018 Update,” released Tuesday by the Pollack Center for Law & Business at New York University and by Cornerstone Research. The 15 enforcement actions compares with 45 in the same period a year ago.

The enforcement decline is part of a downward trend that began in the last half of fiscal year 2017 and has continued through the first half of 2018. [The SEC's fiscal half year began on Oct. 1 and ended on March 31.]

New York University School of Law professor Stephen Choi, director of the Pollack Center and co-author of the report, told Corporate Counsel that if the 2017 decline were due to lingering transition issues after President Donald Trump took office, “as time goes by we would begin to see an uptick. But that's not what we're seeing. This trend in lower enforcement is continuing.”

Stephen Choi. Courtesy photo.

The trend suggests that the SEC is not pursuing companies as aggressively as it had under prior administrations. “It could just be less fraud in the economy, but that isn't likely,” Choi said.

Choi said he also noticed that the range of industries that the SEC brought actions against has narrowed somewhat. The percentage of overall actions brought against companies in the category that includes finance, insurance and real estate rose to 67 percent—the highest percentage since Cornerstone began keeping track in 2010.

In contrast, the services industry had zero enforcement actions for the first time. “There are a lot of big companies in the services industry,” Choi said. “So it could be a temporary blip.”

He said enforcement of the Foreign Corrupt Practices Act seems to escape the downward trend. FCPA enforcements had declined during the first eight months of the Trump administration, but have since jumped, he said.

He pointed to two FCPA enforcements in the first half of 2018, compared with none in the first half of 2017. “And in April, after the time period of this report, there [were] two more FCPA actions,” Choi said. “So it [enforcement decline] is not an overall phenomenon.”

The report also noted that monetary settlements in the first half of the year decreased substantially from prior fiscal years. The average monetary settlement so far in 2018 was $4.3 million, it said, significantly below the
 next-lowest semiannual average of $13.3 million, which occurred in
 the second half of 2015.

And the maximum monetary settlement of $14 million was by far the lowest maximum monetary settlement in any half-year in the database.

In other areas, the report showed:

• There were 12 individual defendants involved in the actions; nine of them held positions as CEO, CFO or controller.
• Actions concerning issuer reporting and disclosure, or investment adviser/investment companies were the most common types.
• More than half of public company and subsidiary defendants cooperated in this time period, compared to less than a third in the second half of 2017.