By Tim Dulaney, PhD and Tim Husson, PhD
Last week, NERA released their annual report (PDF) on trends in SEC settlements for the 2012 fiscal year. The report represents the annual update to NERA's analysis of their proprietary database of SEC litigation releases and administrative proceedings published since July 21, 2002. We've been covering these reports for about a year now and we were excited to see the results of this updated study.
According to the report, the number of settlements rose nearly 7% from FY11. While the number of settlements with individuals reached a level not seen since 2005, SEC settlements with companies decreased by over 10%. Exhibit 3 in NERA's report summarizes the number of settlements over the past decade:
Interestingly, the number of settlements involving insider trading increased by over 90% from FY11.
Although none of the ten largest settlements in FY12 were record-breaking, Citigroup took the prize for the largest settlement in FY12 with their $285 million dollar settlement over charges of misrepresentations to financial services customers. The largest settlement involving individuals amounted to about $115 million, involving Amanda E. Knorr and Tony B. Wragg and their Ponzi scheme. The report finds that the median "settlement values for individuals have more than doubled since 2009 from $103,000 to $221,000." The report notes that "the high number and value of settlements with individuals are consistent with the SEC’s continued commitment to hold individuals accountable for corporate decisions."
The SEC's settlement practices have been criticized for lacking teeth, as some observers have noted that cases against corporations often end with a promise not to violate the laws in the future or other weak penalties. Pursuing actions against individuals may have a larger deterrence effect and avoid the often costly legal battles that can ensue from actions against corporations.
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