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SEC brings record number of enforcement actions against advisors

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The SEC brought a record number of enforcement actions over the past fiscal year, setting all-time highs for cases brought against investment advisors and investment companies, the agency announced this week.

In the fiscal year that ended Sept. 30, the SEC filed 868 enforcement actions against various players in the financial-services sector, including 258 cases against investment advisors or companies. That mark is up from 807 enforcement actions in fiscal 2015, and 755 cases brought in 2014.

In total, the commission won judgments against firms and individuals totaling more than $4 billion in penalties and disgorgements.

In a statement, SEC Chairwoman Mary Jo White touts the work of enforcement staffers to step up market surveillance and their success in "holding executives, companies and market participants accountable for their illegal actions."

"Over the last three years, we have changed the way we do business on the enforcement front by using new data analytics to uncover fraud, enhancing our ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets," White says.

From the start of her tenure at the commission, White has promised a diligent approach to policing the financial industry, professing a "broken windows" enforcement philosophy holding that no infraction is too small to escape the SEC's scrutiny.

In the advisor sector, where officials have noted the challenges of keeping up with a growing industry, White has shifted examiners from the broker-dealer unit of the Office of Compliance Inspections and Examinations over to the RIA side, where they have been looking at a number of factors, including firms' cybersecurity policies, compensation and account selection.

Small wonder, then, that the commission brought more enforcement actions against advisors, says Jason Ewasko, managing director of Cipperman Compliance Services.

"The commission made it known that they intended to examine more firms, and the logical result of that is a spike in enforcement cases," Ewasko says.

Among the enforcement actions the SEC brought over the past year were a number of first-of-their-kind violations, including cases brought against a municipal advisor for breaching fiduciary duty and a private equity advisor for acting as an unregistered broker.

Duane Thompson, senior policy analyst at the fiduciary training firm fi360, notes the SEC's "increased attention to breach of the fiduciary duty of loyalty by selling proprietary funds, and the associated conflict of putting clients in unsuitable share classes."

In the asset-management arena, for instance, the commission highlighted a case brought against three AIG affiliates for steering clients into higher-cost share classes, and another targeting JP Morgan for disclosure failures relating to proprietary investment products.

Ewasko also notes the emerging pattern of the SEC targeting individual firm leaders and third-parties such as attorneys and accountants, as well as the spike in actions brought as a result of whistleblowers.

"Both developments demonstrate that we're firmly ensconced in an ever-expanding regulatory landscape," he says.

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