Securities Settlements Reach Highest Number Since 2007

By Sarah N. Lynch | January 15, 2013

U.S. securities regulators reached 714 settlements with defendants in civil cases in the 2012 fiscal year – the highest number since 2007, a report released on Monday showed.

The biannual report by NERA Economic Consulting found that the overall number of Securities and Exchange Commission settlements increased by 6.6 percent in fiscal 2012 over fiscal 2011.

During that same period, the SEC also saw a big jump in settlements with individuals, which rose 14 percent to 537 from 473, marking the highest level since 2005.

Part of the increase in settlements stems from the SEC’s focus on insider-trading cases, which reached a record 118 in fiscal 2012 and included the high-profile $92.8 million civil penalty against Galleon hedge fund manager Raj Rajaratnam.

NERA’s latest report on SEC settlement trends comes just a few days after Enforcement Director Robert Khuzami announced he plans to depart the agency after a nearly four-year tenure.

Khuzami was hired by former SEC Chairman Mary Schapiro to help polish the agency’s image after its embarrassment over missing Bernard Madoff’s massive Ponzi scheme.

NERA’s latest report also found that during Schapiro’s tenure from 2009 through 2012, the median settlement with individuals increased by nearly 40 percent from $110,000 to $152,667.

That could help the SEC bolster its case that it has stepped up enforcement against individuals, rather than focusing on penalties against companies. Some critics have argued that fines against companies often punish shareholders who were already harmed by the bad behavior.

Although the report cautions that it may be too early to identify “signature trends” during the Schapiro era, it finds that the “apparent shift in settlement activity and settlement amounts with individuals” appears to be “consistent with a focus on individual accountability” by the SEC.

NERA publishes a report twice a year that analyzes SEC settlement data.

The most recent report was released on the day that Khuzami and SEC deputy enforcement director George Canellos publicly defended their division’s record.

In a posting on the National Law Journal’s website, Khuzami and Canellos take aim at a Dec. 3 article in the same publication from Columbia University Law Professor John Coffee.

Coffee used prior NERA data on settlements to argue that there is a “disturbingly persistent pattern” in which the SEC “rarely sues individual defendants at large financial institutions” and “frequently loses” when it does sue.

Khuzami and Canellos question how Coffee interpreted the data and rebutted the claim that the SEC rarely sues individuals.

“His definition of ‘senior executive’ appears … limited, since he makes no mention of the SEC’s actions against high-ranking managers at such firms as Credit Suisse and Bear Stearns for misconduct related to the credit crisis,” they wrote.

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