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Business Crimes BulletinFeaturesRegulationWhite Collar Crime

Lack of Transparency In SEC Settlement Penalty Calculations May Frustrate Self-reporting

By Michael J. Osnato Jr., Meaghan Kelly and Stephanie Hon
January 01, 2024

U.S. Securities and Exchange Commission (SEC) settlements are meant to serve a public good by providing clear guidance as to the rules of the road and the consequences of ignoring them. Yet SEC settlements often lack explanation as to how the civil monetary penalties were calculated per the statutory framework or why such penalties were appropriate under the circumstances. This lack of transparency tends to create market confusion and may frustrate certain behavior the SEC seeks to encourage, namely self-reporting.

In light of skyrocketing overall monetary recoveries by the SEC — e.g., in the SEC's 2022 fiscal year, the SEC recovered a record $6.4 billion in penalties, disgorgement and prejudgment interest; in the 2023 fiscal year, the SEC recovered $5 billion — and stunning penalties in the broker-dealer off-channel communications settlements, the lack of transparency in penalty calculations is especially in focus (see, Gensler, "'Partners of Honest Business and Prosecutors of Dishonesty': Remarks Before the 2023 Securities Enforcement Forum").

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