SEC Chairman Jay Clayton has questioned the fairness of penalizing entire corporations for what may be the infractions of a few individuals. | Pablo Martinez Monsivais/AP Corporate penalties have plunged at SEC since Trump took office SEC Chairman Jay Clayton, who has questioned the fairness of enforcement penalties on corporations, is getting a chance to practice what he preaches.

Publicly traded companies have been hit with fewer and much less costly penalties by the Securities and Exchange Commission since Donald Trump became president.

From February through September, the agency, now headed by Wall Street lawyer Jay Clayton, collected $127 million in corporate civil penalties in 15 cases, according to a POLITICO review of SEC data. That compares with $702 million in 43 cases from February through September 2016.


Notably, in December 2016 and the first 20 days of January 2017 — just before President Barack Obama’s SEC chief, Mary Jo White, stepped down — the agency collected $231 million in 23 corporate cases. The tally, compiled from cases posted on the SEC’s website, includes units of publicly traded companies.

It is still early in the tenure of Clayton, a Trump appointee who joined the agency in May. But these numbers suggest a course for enforcement at the regulator different from that of White, a former prosecutor, who emphasized corporate penalties as a way “to be certain our settlements have teeth.”

“I don't think they are inclined to impose large fines unless there is significant investor harm or benefit to the company,” Brad Bennett, a partner at law firm Baker Botts, said of the Clayton SEC.

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“Your tally jibes with the anecdotal evidence in the defense bar suggesting that there was a burst of activity on older cases leading up to the inauguration and then a significant drop-off,” said Bennett, who was previously head of enforcement at the Financial Industry Regulatory Authority, the market's self-regulator.

Clayton, who has questioned the fairness of penalizing entire corporations for what may be the infractions of a few individuals, has shifted away from White’s tough rhetoric and emphasized aggressive enforcement when retail investors are specifically harmed.

That was evident in an event he hosted this summer. The SEC chief organized a wine-and-cheese party for enforcement staff on his 10th-floor balcony overlooking downtown Washington. The small soiree was thrown to recognize the staff who brought charges on July 12 against a call center scheme selling dubious investments to senior citizens, said two people familiar with the event.

The message was clear: Clayton wants more enforcement cases where there is a direct link between misconduct and harm to smaller investors.

He drove home the point in September, when he announced a new SEC enforcement task force dedicated to fighting misconduct against retail investors.

Speaking at a conference on Thursday, Stephanie Avakian, co-director of the SEC’s enforcement division, acknowledged that there is concern that the retail emphasis will detract from corporate prosecutions.

“I want to address one question that we have received a lot," Avakian said. "That is, whether our enhanced retail focus means that we are allocating fewer resources to financial fraud and policing Wall Street. The answer to that question is simple: No. The premise that there is a trade-off between Wall Street and Main Street enforcement is a false one.”

Yet Avakian's co-director, Steven Peikin, said at the same conference that the SEC's enforcement division cannot hire new attorneys due to the lack of a budget increase for the agency. Trump asked to keep the agency's budget flat for fiscal 2018.

"We don't have hiring authority to backfill people who leave," Peikin said. "I expect we will probably be down as much as maybe 100 spots by the time this budgetary constraint eases."

SEC spokesman Kevin Callahan said it is too early to draw conclusions about the size and number of enforcement cases.

“The effectiveness and vigor of the SEC's enforcement program is best measured in its entirety over time," he said in a statement. "Comparing arbitrarily selected data sets and dates is not illuminating or instructive.”

While the SEC’s new leadership has slapped penalties on individuals and private businesses such as accounting firms, fines for publicly traded companies are more controversial. Skeptics of corporate penalties argue that the fines are unfair to a firm’s shareholders, who end up paying even though they weren’t responsible for the wrongdoing.

Clayton has aligned himself with the skeptics.

“I do have a hard time making shareholders pay substantially for that type of activity,” he told the House Financial Services Committee at an Oct. 4 hearing, referring to wrongdoing that he said is often carried out by an "individual bad actor." That sentiment has been echoed by the SEC’s Republican commissioner, Michael Piwowar.

In a section on enforcement during a speech in July, Clayton talked about “affinity fraud” and “microcap fraud,” misconduct typically perpetrated by “The Wolf of Wall Street”-type characters — not big banks. He did not say anything about corporate penalties.

The SEC will publish a more comprehensive picture of its civil enforcement work in the days ahead when it releases statistics on cases and cash collected for the 2017 fiscal year, which ended on Sept. 30. The agency typically doesn’t break out cash collected from corporate penalties as part of its overall tally for enforcement.

To be sure, corporate penalties are just one measure of SEC enforcement. The agency also orders wrongdoers to pay back ill-gotten gains in a practice known as disgorgement. Those are considered not penalties but remedies for victims.

And penalties can swing widely from month to month. In June 2016, Merrill Lynch, a Bank of America subsidiary, agreed to pay the SEC $358 million and admit that it used customers’ cash to trade with on its own. Had the firm lost money in its trading, customers would have been exposed to a massive shortfall in reserve accounts, the SEC said.

A month later, the SEC collected just $850,000 in corporate penalties.

Then, in September 2016, Weatherford International, one of the world’s biggest oil-and-gas servicing companies, paid the agency a $140 million penalty for alleged accounting fraud.

The biggest corporate penalty under Clayton was a $32.3 million fine in September on several units of State Street, a Boston-based financial services company. State Street overcharged customers, the SEC said.

Piwowar, who served as acting chairman before Clayton, dissented from 28 corporate penalties imposed in 2016 — including an $80 million penalty for Monsanto in February 2016 — and the first 20 days of January 2017. Typically, he dissented when the penalty was less than $1 million.

In a speech in February, Piwowar said he supports corporate penalties in certain circumstances, but added, “We must also remember the innocent investors who are so often the primary victims of the fraud.”

Piwowar has not dissented from any enforcement actions since White left.

Advocates for tough SEC enforcement point to history to argue that companies breathe easier when Republicans are in the White House.

SEC enforcement penalties plunged 84 percent — to $256 million from $1.59 billion — from fiscal year 2005 to 2008 during President George W. Bush’s administration, according to a 2009 Government Accountability Office report.

“Corporate penalties were highly disfavored and caused there to be fewer and smaller corporate penalties,” the report said.

One SEC attorney told the GAO that a company proposed a settlement with a higher penalty than what was ultimately approved by the agency’s commissioners. Another described having a proposed penalty range of $10 million to $35 million. But the commissioners reduced it to $5 million to $15 million.

As the SEC begins fiscal 2018, the cases the agency brings will tell a lot about whether Sen. Elizabeth Warren (D-Mass.) and other enforcement advocates are right to be suspicious of Clayton's enforcement strategy.

“In recent history, Republican commissioners on the SEC have favored weaker enforcement while Democratic commissioners have sought tougher enforcement,” Warren told him at a Senate Banking Committee hearing in March. “If President Trump wanted to make sure that the SEC would have a hard time in going after his Wall Street friends, it seems to me you would be the perfect SEC chair."

Marcus Stanley, executive director of Americans for Financial Reform, which frequently allies with Warren, said it's hard to judge Clayton's record because more time is needed.

“This data bounces around a lot, but the direction certainly looks more lenient,” he said.