Recently Stephanie Avakian (Director of the SEC’s Division of Enforcement) gave this speech in which she touched upon a variety of enforcement topics.
This post excerpts certain portions of Avakian’s speech regarding the quality, nature, and effectiveness of SEC enforcement efforts, individual accountability, and the time it takes to complete an investigation and enforcement action.
Starting with the numbers, Avakian stated:
“In fiscal year 2019, the Commission obtained financial remedies of $4.3 billion dollars. That is the highest the Commission has ever obtained in a single year – at least since 2002, which is as far back as we reliably track this metric. What’s more, I can tell you now that we are going to surpass that amount this fiscal year.
These numbers provide some measurement, but they do not adequately convey the quality, nature, and effectiveness of our efforts. For that, we have to ask questions like: Did we focus on the most serious violations? Did we obtain meaningful punishments that deter unlawful conduct? Did we incapacitate wrongdoers? Did we recoup ill-gotten gains and return money to investors? […] I am going to discuss a few efforts I think answer those questions and merit highlighting.”
One area Avakian mentioned was the FCPA and she stated:
“[W]e have continued to be very active. A few cases to note include actions against Novartis, after subsidiaries engaged in schemes to make improper payments or provide benefits to healthcare providers in South Korea, Vietnam, and Greece in exchange for prescribing or using certain products; Ericsson for engaging in a large-scale bribery scheme involving the use of sham consultants to secretly funnel money to government officials in multiple countries; and Telia – which is a good example of international cooperation – for offering and paying at least $330 million in bribes to win business in Uzbekistan.”
Telia was actually a 2017 enforcement action (see prior posts here and here), not a FY 2019 enforcement action.
In any event, given the questions Avakian posed (including “did we obtain meaningful punishments that deter unlawful conduct”), it is interesting that she highlighted the Novartis action.
As highlighted in this prior post, in 2016 Novartis coughed up $25 million to resolve a SEC FCPA enforcement action. As a condition of settlement, the SEC ordered Novartis to cease and desist from committing or causing any violations and any future violations of the FCPA’s books and records and internal controls provisions.
Yet in June Novartis joined the FCPA repeat offender club by agreeing to another FCPA settlement – this time for approximately $347 million (see here).
As to Avakian’s question “did we recoup ill-gotten gains and return money to investors,” in SEC FCPA enforcement actions the answer is (believed to) universally no. Indeed, as highlighted in this prior post during oral argument at the Supreme Court in March in Liu v. SEC the Deputy Solicitor General stated:
“… [A]s an empirical matter, the SEC tries to return the money to investors when it can, and we’re largely successful in doing that. Now there is a category of cases like the FCPA cases, the Foreign Corrupt Practices Act cases, where sometimes we do get big judgments. They’re not returned to investors because there really is no obvious universe of individual victims from an FCPA violation.”
Avakian also talked about individual accountability and stated:
“[A] critical part of our program continues to be seeking to deter wrongdoing by holding individuals accountable – which we do in roughly 70% of cases over time.”
However, as highlighted in this prior post, since 2016 approximately 80% of corporate SEC FCPA enforcement actions have not resulted in any related SEC charges against company employees. Thus far in 2020, there have been 6 corporate SEC enforcement actions and 5 of those 6 (83%) have not resulted in any related SEC charges against company employees. As highlighted in this prior post, in 2019 85% of corporate SEC FCPA enforcement actions have not resulted in any related SEC charges against company employees.
Avakian next talked about resource allocation and stated that one thing the SEC has done to “maximize resource allocation was to try to shorten the amount of time it takes to complete investigations and bring cases.”
In the FCPA context, this statement is laughable.
As highlighted in this prior post, 4.5 years was the approximate median length of time companies that resolved FCPA enforcement actions in 2019 were under scrutiny.
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