Stephen Choi, professor at the NYU School of Law and director of the Pollack Center for Law & Business.

Despite critics who have challenged the legality of the process, the U.S. Securities and Exchange Commission filed every public company enforcement action in the first half of fiscal 2019 as an administrative proceeding, according to a new report.

The report, “SEC Enforcement Activity: Public Companies and Subsidiaries—Midyear FY 2019 Update,” was released Wednesday by the New York University Pollack Center for Law & Business and Cornerstone Research.

Law professor Stephen Choi, director of the Pollack Center and co-author of the report, told Corporate Counsel it's the first time at least since 2010, when the center began its SEC records database, that 100% of the SEC's actions were brought before an administrative law judge. By comparison, in 2010 only 32% were administrative rather than filed in court.

“It was a big surprise,” Choi said, “because they have been the topic of some debate. Traditionally [since 2013] the SEC has brought most actions as administrative procedures, but I was surprised at 100% this year.”

The law professor said he didn't know why all the actions took this venue. “It could just be a onetime thing,” he explained.

The report shows that the most enforcement actions by far were taken against the finance, insurance and real estate industry division at 67%, with 12% against manufacturers and the remainder spread out over other industries. That trend has held true most years since 2010.

Choi said general counsel would be especially interested in the statistics showing monetary settlements and company cooperation. In this six-month period, the report says a record high 88% of defendant companies cooperated with SEC investigations. That compared to an average of 51% for the previous nine years.

In this period, over half of company defendants self-reported their violations, compared with the nine-year average of only 13%.

“The overall trend from 2010 to the present is that cooperation is increasing each year,” Choi noted. “That corresponds with the growth of internal compliance at companies.”

The report also shows that total enforcement actions remained at near-record levels through the fiscal year's first half, which ended March 31. That was true despite the federal government shutdown during which the SEC suspended non-emergency enforcement for one month.

“The overall number of new actions are back to historical averages,” Choi said. “In late 2017 and early 2018, with a change in chairs at the SEC, the numbers dropped dramatically, but they are back up now.”

Co-author Sara Gilley, Cornerstone Research vice president, noted that the enforcement numbers were boosted by the SEC's Share Class Selection Disclosure Initiative, in which investment advisers self-reported inadequate disclosures concerning the sale of mutual fund shares. Of the 52 total actions taken, 25 involved the share initiative.

Gilley said in a statement that none of the 25 monetary settlements for actions brought under the Share Class Initiative included civil penalties. She explained the lack of penalties is “consistent with the SEC's stated incentive to recommend no civil penalties for self-reporting. In comparison, 88% of the other 26 monetary settlements in the first half of FY 2019 included civil penalties.”

Choi also noted the absence of civil penalties against the investment advisers led to a lower average settlement amount. The report shows an average monetary settlement of $15 million per action during the period, compared with the historical average settlement of $29 million per action.

Looking to the future, the law professor said there are three areas he wants to watch closely:

• Whether the number of enforcement actions will continue to grow.
• Whether the overall trend toward cooperation continues at a record high percentage.
• Whether the number of administrative proceedings used to resolve actions continues at a record pace. “I'll definitely be watching to see if that trend continues,” Choi said.