Securities Regulators Constantly Evaluate the Allocation of their Resources

compliance associate

Just as investment advisers implement an asset allocation strategy to benefit their clients, securities regulators must allocate their assets and resources effectively to protect investors. The SEC said recently that because it has limited resources, the Commission must set priorities and will pursue the most serious threats to investors and market integrity. The SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

In the Division of Enforcement’s Annual Report, which was released on November 15, 2017, the SEC listed the core principles that guide its decisions. The Co-Directors of the Enforcement Division stated that they adhere to these core principles as they seek to protect investors, detect misconduct, and punish wrongdoers. Pursuant to Principle 5, the SEC constantly assesses the allocation of its resources.

The Enforcement Division employs fewer than 1,200 professionals. During the past fiscal year, the SEC received more than 16,000 tips that came primarily from the general public. The SEC also received in excess of 20,000 reports of suspicious activity, which were filed by broker-dealers and other entities.

According to the Annual Report, the SEC brought a diverse mix of 754 enforcement actions, including 446 standalone actions. As a result of these actions, a record $1.07 billion was returned to harmed investors. A significant percentage of these 446 standalone cases related to investment advisory issues, securities offerings, and issuer reporting/accounting and auditing. The SEC also continued to pursue actions involving market manipulation, insider trading, and broker-dealers. It obtained judgments and orders demanding more than $3.789 billion in disgorgement and penalties. The Enforcement Report, as well as the accompanying press release, can be found at

The Report issued this warning:

The substantial remedies we obtain are important. They protect investors by deterring future wrongdoing, and when we obtain disgorgement of ill-gotten gains, harmed investors are often compensated. We also seek bars that prevent wrongdoers from working in the securities industry, as we believe holding individuals accountable for their improper actions is important and effective.

The SEC has demonstrated that the Commission will shift its resources to protect investors. According to a speech given by Peter B. Driscoll, Acting Director of the Office of Compliance Inspections and Examinations (“OCIE”) on September 14, 2017, OCIE redeployed a significant number of examiners to its Investment Adviser and Investment Company examination program. The “redeployment of staff was an appropriate and tailored response to the growing investment adviser population and its importance to retail investors.”

Most compliance issues can be identified and addressed long before they grab the attention of the Enforcement Division. To avoid problems, firms must allocate sufficient resources to their compliance programs. In addition, those resources must be used efficiently and effectively.

Les Abromovitz