Financial Crisis-Related Enforcement Actions By SEC Signal Real Investor Protection Interest

Posted on March 22nd, 2013 at 10:11 AM

The Securities and Exchange Commission (SEC) is engaging in a higher than normal public relations campaign, and the message is loud and clear: the SEC is and has engaged in active enforcement activity to signal that it has a real interest in investor protection.

The PR campaign appears on the SEC website ( in a publication entitled, SEC Enforcement Actions Addressing Misconduct That Led to or Arose From the Financial Crisis.  Let’s highlight some of the more important enforcement activities.

First, the statistics.  Through February 1, 2013, the SEC has charged 154 entities and individuals.  They have charged 65 CEOs, CFOs and other senior corporate officers.  36 individuals have received officer and director bars, industry bars or commission suspensions.  Wrongdoers have agreed to pay or have been ordered to pay $1.53 billion in penalties, as well as have agreed to pay or have been ordered to pay $756 million in disgorgement and pre-judgment interest.  Additional monetary relief obtained for harmed investors totals $400 million.

Those figures are sizable.  They come from four categories of enforcement activities.  They are: (1) misrepresentations or improper pricing related to CDOs (collateralized debt obligations) or other complex structured products; (2) misleading disclosures to investors about mortgage related risk and exposure; (3) concealment of the extent of risky mortgage related and other investments in mutual funds and in other financial products; and (4) other, miscellaneous fraud.

Some highlights from the first fraud category (involving CDO and other complex structured products) include:

  1. Citigroup - SEC charged Citigroup's principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion CDO tied to the housing market in which Citigroup bet against investors as the housing market showed signs of distress. The proposed settlement would require a payment of $285 million by Citigroup that would be returned to harmed investors. (10/19/11)
  2. Goldman Sachs - SEC charged the firm with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.  The firm agreed to pay record penalty in $550 million settlement and reform its business practices. (7/15/10)
  3. Wells Fargo - SEC charged Wells Fargo's brokerage firm and a former vice president for selling investments tied to mortgage-backed securities without fully understanding their complexity or disclosing the risks to investors. Wells Fargo agreed to pay more than $6.5 million to settle the charges. (8/14/12)

            Some highlights from the second fraud category (involving mortgage related risk and disclosure) include:


  1. Citigroup - SEC charged the company and two executives with misleading investors about exposure to subprime mortgage assets. Citigroup paid $75 million penalty to settle charges, and the executives also paid penalties. (7/29/10)
  2. Credit Suisse Securities (USA) SEC charged the firm with misleading investors in offering of residential mortgage-backed securities. Credit Suisse agreed to pay $120 million to settle the SEC's charges. (11/16/12)
  3. J.P. Morgan Securities - SEC charged the firm with misleading investors in offerings of residential mortgage-backed securities. J.P. Morgan Securities agreed to pay $296.9 million to settle the SEC's charges. (11/16/12)


            Likewise, some highlights from the third fraud category (the extent of mortgage risk in mutual funds and other financial products) include:

  1. Charles Schwab - SEC charged entities and executives with making misleading statements to investors in marketing a mutual fund heavily invested in mortgage-backed and other risky securities. The Schwab entities paid more than $118 million to settle charges. (1/11/11)
  2. Morgan Keegan - SEC charged the firm and two employees with fraudulently overstating the value of securities backed by subprime mortgages.  The firm agreed to pay $100 million to the SEC and the two employees also agreed to pay penalties, including one who agreed to be barred from the securities industry. (6/22/11)
  3. TD Ameritrade - SEC charged the firm with failing to supervise representatives who mischaracterized the Reserve Fund as safe as cash and failed to disclose risks when offering the investment to customers.  The firm settled charges by agreeing to repay $10 million to certain fund investors. (2/3/11)

            Finally, there were a host of other enforcement actions that fall within the miscellaneous category.  Among the most notable were

  1. Bank of America - SEC charged the company with misleading investors about billions of dollars in bonuses being paid to Merrill Lynch executives at the time of its acquisition of the firm, and failing to disclose extraordinary losses that Merrill sustained. Bank of America paid $150 million to settle charges. (2/4/10)
  2. Credit Suisse bankers - SEC charged four former veteran investment bankers and traders for their roles in fraudulently overstating subprime bond prices in a complex scheme driven in part by their desire for lavish year-end bonuses. (2/1/12)

            As one can see, the SEC indeed has been busy advocating the interests of investors and aggressively enforcing the securities laws.  That is good news for investors, as well as for the many financial advisers who are honest and ethical!


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