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The SEC’s Shrinking FCPA Jurisdiction


As stated in the DOJ/SEC issued FCPA Guidance: “SEC is responsible for civil enforcement of the FCPA over issuers and their officers, directors, employees, agents, or stockholders acting on the issuer’s behalf.”

The Guidance then states: “[A] company is an ‘issuer’ under the FCPA if it has a class of securities registered under Section 12 of the Exchange Act or is required to file periodic and other reports with SEC under Section 15(d) of the Exchange Act. In practice, this means that any company with a class of securities listed on a national securities exchange in the United States, or any company with a class of securities quoted in the over-the-counter market in the United States and required to file periodic reports with SEC, is an issuer.”

As highlighted in this post, currently there are substantially fewer issuers subject to SEC FCPA jurisdiction compared to prior decades.

This recent Wall Street Journal op-ed was titled “Where Have All The Public Companies Gone?” and noted:

“The number of public companies in the U.S. has been on a steady decline since peaking in the late 1990s. In 1996 there were 7,322 domestic companies listed on U.S. stock exchanges. Today there are only 3,671. Easy access to venture, growth and private-equity capital means that companies no longer need to pursue an initial public offering to fund growth or access liquidity. Increases in regulations, shareholder lawsuits and activist demands have also diminished the appeal of a public listing. Over the past two decades, the number of annual IPOs has fallen sharply  to 128 in 2016 from 845 in 1996.”

See also, this recent Bloomberg article also titled “Where Have All the Public Companies Gone?”

In this 2017 speech, SEC Chair Jay Clayton noted “the roughly 50% decline in the total number of U.S.-listed public companies over the last two decades” and observed:

“While there are many factors that drive the decision of whether to be a public company, increased disclosure and other burdens may render alternatives for raising capital, such as the private markets, increasingly attractive to companies that only a decade ago would have been all but certain candidates for the public markets.  And, fewer small and medium-sized public companies may mean less liquid trading markets for those that remain public.  Regardless of the cause, the reduction in the number of U.S.-listed public companies is a serious issue for our markets and the country more generally.  To the extent companies are eschewing our public markets, the vast majority of Main Street investors will be unable to participate in their growth.”

The above figures perhaps do not capture the full range of “issuers” subject to the FCPA, but it is clear that the SEC currently has jurisdiction over fewer “issuers” compared to prior decades.

One might then expect fewer SEC FCPA enforcement actions for the same reason one might expect fewer speeding tickets on a particular road if traffic on that road is significantly down compared to prior years.

However, the opposite has generally occurred in the FCPA’s modern era. In other words, there are fewer “issuers” subject to SEC jurisdiction, but FCPA enforcement against those issuers has generally increased or stayed relatively the same. (See here for SEC FCPA enforcement actions against issuers).

Once again, what does this say about the “success” of the FCPA? (See here for a 25 minute video).

Should not the dwindling number of “issuers” foreshadow less, not more, SEC FCPA enforcement?

What the dwindling number of “issuers” also instructs is that it is even more improper (than it always has been) to compare SEC FCPA enforcement to DOJ FCPA enforcement. (See here for a 2014 post on the same topic).

As demonstrated by the below visual, the SEC has FCPA jurisdiction over only “issuers” (78dd-1 – a relatively narrow slice of the full range of persons (both legal and natural) subject to the FCPA).

The DOJ, by contrast, has FCPA jurisdiction over “issuers” (78dd-1), as well as domestic concerns (78dd-2 – all U.S. companies regardless of form of business organization and U.S. persons) and persons other than issuers or domestic concerns (78dd-3 – literally any company in the world or any person in the world to the extent certain jurisdictional requirements are met).

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