In our recent report, SEC Settlements Trends: 1H 2011 Update, my co-authors (Jan Larsen and James Overdahl) and I document that the SEC settled with 344 defendants in the first half of its 2011 fiscal year (“1H11”), putting the agency on pace to settle with 688 defendants for the full year, in line with the 681 settlements in FY10. This stability in overall settlements, however, contrasts with a substantial shift in their composition. The number of company settlements rose by 43% to 114, an annual pace of 228, compared with 160 for the entire 2010 fiscal year. As a result, company settlements made up 33% of 1H11 settlements. Individual settlements declined 12% to 230, an annual pace of 460, compared with 521 in FY10.
However, individual accountability remained an important theme in 1H11. Indeed, four of the 10 largest settlements in 1H11 were with individuals, including the $310 million default judgment entered against Milowe Allen Brost and Gary Allen Sorenson, which also rates as the ninth-largest SEC settlement since the passage of the Sarbanes-Oxley Act (“SOX”). Other individual defendants settling with the SEC in 1H11 included Jacob “Kobi” Alexander, former CEO of Comverse Technology, and Joseph P. Nacchio, former CEO of Qwest Communications.
Settlements dropped sharply in the historically large categories of public company misstatement and insider trading. Public company misstatement settlements declined in 1H11 to 33, an annual pace of 66, down 39% from the 108 settlements in FY10 and more than 60% from the post-SOX high of 170 in 2007. Despite the recent prominence of insider trading enforcement including the Galleon case, the SEC reached only 25 insider trading settlements in 1H11. If this rate continues, the SEC will reach only 50 insider trading settlements this fiscal year, which would represent the lowest number of insider trading settlements in any year since SOX and a drop of nearly one-third from the 74 settlements reached in FY10.
The full paper is available for download at here.