Significant Decline in SEC Accounting Enforcement Actions During Gensler's Last Year

Significant Decline in SEC Accounting Enforcement Actions

In the final year of Gary Gensler’s chairmanship, the U.S. Securities and Exchange Commission (SEC) showed a startling decrease in its enforcement of accounting and auditing standards, according to a report from Cornerstone Research. The study detailed that in fiscal year 2024, the SEC initiated only 45 enforcement actions related to accounting and auditing—a staggering 46% drop from the previous year, which marks the lowest number since 2021.

As the SEC concluded its activities for fiscal 2024, it became evident that this reduction ended two consecutive years of rising enforcement actions. Interestingly, while the number of enforcement initiatives saw a steep decline, the total monetary penalties imposed during this period were at their highest level since 2021, amounting to over $770 million. This figure represents a 32% increase compared to fiscal 2023 and underscores a paradox where diminished actions were paired with heightened financial reprimands.

A Closer Look at the Data

The report highlights various trends that emerged during this fiscal year. Approximately 50% of the enforcement actions were activated during the fourth quarter, with a noticeable surge of efforts happening in September, the closing month of the fiscal year. Jean-Philippe Poissant, a coauthor of the report, noted the unique dynamics at play alongside an isolated Supreme Court ruling—specifically, the decision in SEC v. Jarkesy—resulting in the dismissal of six administrative proceedings the SEC had previously set in motion during the fiscal year.

Comparatively, the Gensler era, characterized by a focus on emerging issues like cryptocurrency, witnessed a relatively lower emphasis on accounting enforcement compared to previous administration figures, notably under Jay Clayton (2017-2020). The average number of enforcement actions initiated during Gensler’s time was 60 per year, notably lower than the 74 actions seen in the Clayton era. Furthermore, settled actions fell by nearly 20%, averaging only 66 under Gensler compared to 80 under his predecessor.

Broader Implications of Reduced Actions

The ramifications of these declining numbers extend beyond mere statistics. Actions initiated against U.S. respondents drastically decreased by 56% in FY 2024. Interestingly, there was an uptick in actions against non-U.S. respondents, which saw an 18% increase. In addition, actions connected to announced restatements or material weaknesses in internal control plummeted to just nine, a 78% dive from the previous two fiscal years.

Moreover, the agency raised a point of concern regarding internal accounting controls, which witnessed a drop to its lowest level since FY 2021.

Settlements and Cooperation Trends

On the individual respondent front, 67% of the 33 individuals who settled with the SEC in FY 2024 faced non-monetary sanctions. The report also noted that a sizable 25% of respondents sought cooperation with the SEC, having undertaken remedial actions or self-reported issues—a slight decrease from the preceding fiscal year.

The total number of respondents involved in accounting and auditing enforcement actions during this fiscal year was 75, down significantly from 111 respondents in FY 2023, placing it well below the four-year average for both the Gensler and Clayton periods.

Conclusion

The findings of the Cornerstone Research report position Gensler’s final year as a pivotal point in an evolving regulatory landscape, where the SEC appears to have shifted its focus. While monetary penalties have risen sharply, the emphasis on enforcement actions related to accounting and auditing has declined, raising questions about future regulatory priorities. As the SEC continues to navigate the complexities of financial oversight, the implications of these trends will certainly shape its strategies moving forward.