Penal­ties fall in Trump’s first year, study says

The Columbus Dispatch - - Market Summary - By Matt Robin­son and Ben Bain

In its lat­est fis­cal year, Wall Street’s top reg­u­la­tor sought the small­est amount of penal­ties since 2013, a drop that took place as the agency went months with­out per­ma­nent lead­er­ship and could show a softer ap­proach to polic­ing wrong­do­ing.

The Se­cu­ri­ties and Ex­change Com­mis­sion tried to ob­tain $3.4 bil­lion in fines and dis­gorge­ment from com­pa­nies and in­di­vid­u­als dur­ing the 12 months ended in Septem­ber, ac­cord­ing to data col­lected by Urska Ve­likonja, a Ge­orge­town Univer­sity law pro­fes­sor. The SEC filed 612 en­force­ment cases, also the fewest in four years, Ve­likonja’s re­search shows.

The time pe­riod in­cludes for­mer SEC Chair Mary Jo White’s fi­nal months at the agency, Com­mis­sioner Michael Pi­wowar’s brief stint lead­ing it, and the first five months of new Chair­man Jay Clay­ton’s ten­ure.

Al­though the data spans a tran­si­tion atop the SEC, it may be early ev­i­dence that Pres­i­dent Don­ald Trump’s more friendly tone to­ward cor­po­ra­tions is hav­ing an im­pact on the reg­u­la­tor’s in­ves­ti­ga­tions into wrong­do­ing, ac­cord­ing to Ve­likonja.

She points out that since Clay­ton — the for­mer Wall Street deals lawyer ap­pointed by Trump — took over in May, the agency has pur­sued just two sanc­tions against large fi­nan­cial firms: a $35 mil­lion set­tle­ment with State Street Corp. and a $97 mil­lion case against Bar­clays Plc.

In the same pe­riod a year ear­lier, more than a dozen big fi­nan­cial com­pa­nies faced SEC sanc­tions, in­clud­ing Gold­man Sachs, Bank of Amer­ica Corp.’s Mer­rill Lynch unit, UBS Group and hedge fund firm Och-Ziff Cap­i­tal Man­age­ment Group, Ve­likonja said.

The over­all de­cline in cases might show that the agency is shift­ing away from White’s so-called bro­ken win­dows pol­icy of ag­gres­sively pur­su­ing smaller in­frac­tions to de­ter big­ger vi­o­la­tions, ac­cord­ing to Ve­likonja.

“The big take­away is that the sweeps are gone,” she said in an in­ter­view. “They’re not go­ing af­ter those tech­ni­cal vi­o­la­tions.”

SEC spokes­woman Judy Burns and Chris Carofine, a spokesman for Clay­ton, didn’t im­me­di­ately re­spond to re­quests for com­ment.

Not only did penal­ties go down in the ag­gre­gate for fis­cal 2017 com­pared with the year ear­lier, but the me­dian fine did as well, fall­ing 35 per­cent, ac­cord­ing to Ve­likonja’s anal­y­sis. She at­tributes that drop to the Repub­li­can view that cor­po­rate fines harm share­hold­ers, who of­ten have al­ready been hurt when al­le­ga­tions of wrong­do­ing drive down com­pa­nies’ stock price.

For his part, Clay­ton, who spent his ca­reer at law firm Sul­li­van & Cromwell, has said the SEC won’t let up on en­force­ment and will be par­tic­u­larly fo­cused on vi­o­la­tions that af­fect mo­mand-pop in­vestors. There may also be other ex­pla­na­tions for the drop in fines.

Cases brought by the SEC can of­ten take years to de­velop, and agency lead­er­ship of­ten strives to fin­ish high-pro­file in­ves­ti­ga­tions as pres­i­den­tial ad­min­is­tra­tions draw to a close. Clay­ton’s en­force­ment team could now be in the po­si­tion of re­build­ing its pipe­line of cases, with set­tle­ments against com­pa­nies and in­di­vid­u­als com­ing some time in the fu­ture.

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