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If You Were Told The SEC Had A Busy Year, Would You Believe It?


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On August 7, 2018, Elon Musk infamously tweeted "Am considering taking Tesla private at $420. Funding secured." The stock soared before it was ultimately revealed to be a complete lie. Musk got off relatively easily. He ended up paying a $40 million fine, had to step down as Tesla’s Chairman and was required to have controls and procedures put in place to oversee his communications.

Ever since Musk's tweet, faith in the U.S. Securities and Exchange Commission has deteriorated among investors. While hardly a new belief, the consensus seems to be that you can get away with doing whatever you want and pay a small price if you're in a position of power or wealth.

Despite this general consensus, the SEC appears to be pretty busy going after white-collar criminals, according to research from New York University and Cornerstone Research that analyzed the SEC’s annual report.

The SEC initiated a total of 526 cases against private and public companies during the most recent fiscal year, the highest level since 2016. 95 of these new cases, or 18% of the total, were against publicly traded companies and their subsidiaries. While it's surprising to see their share so low, it's still the largest annual total in the ten years the report has been produced.


Possibly in a sign that gurus on finance Twitter are not reliable investment managers, the SEC reported for the first time that 'Investment Adviser/Investment Company' was the most common allegation type, with 37% of the total.


This is consistent with SEC Chairman Jay Clayton's main focus since taking the job in 2017 of "furthering the interests of America’s Main Street investors." While the fiasco surrounding Musk's tweets and the daily, vicious market moves on "hopes of a trade deal" would signal otherwise, we digress. In a sign the actions brought by the SEC are more rigorous, the agency saw 76% of defendants cooperate, a record high percentage. Total monetary settlements through fines and disgorgements for the fiscal year amounted to $4.3 billion, with $1.5 billion coming from publicly traded companies and their subsidiaries. That's an increase from $3.9 billion during the previous fiscal year, with $1 billion coming from Woodbridge Group for running a Ponzi scheme targeting retail investors.


The $1.5 billion in monetary settlements from publicly traded companies and their subsidiaries is consistent with the $1.5 billion average since fiscal year 2010. The average monetary settlement for publicly traded companies and their subsidiaries was $16 million.


While the data points to an uptick in SEC cases being opened, the agency still must prove nobody is above the law. It's been over two years since the SEC created the "Cyber Unit," tasked with "market manipulation schemes involving false information spread through electronic and social media," and "Retail Strategy Task Force." Judging by Musk's continued pumping of the Cybertruck, even as recently as last night, it would seem they still have a lot of work to do to make investors believe they'll hold people accountable.


Leftover Crumbs

  • That's more than one pizza per day for a month. John Schnatter, who founded Papa John's and was ousted from the company following his use of racial slurs, apparently isn't a fan of the company's new CEO and even its pizza. In his first interview in more than a year, Schnatter said "I've had over 40 pizzas in the last 30 days. It's not the same pizza. It's not the same product. It just doesn't taste as good." Schnatter, who's still Papa John's largest shareholder, then went on to attack the company's new CEO, saying "He doesn’t really have a passion for quality, and probably most important — he doesn’t have a passion for people." Whatever this means, he concluded the interview saying "The day of reckoning will come."

  • Hopefully they'll be OK. According to the the Federal Deposit Insurance Corporation, U.S. bank profits fell by $4.5 billion to $57.4 billion in the third quarter. "Nonrecurring events," which were asset write downs at Bank of America, Wells Fargo and Mufg Union Bank, caused the decline. The FDIC said 62% of banks reported annual profit increases, 4% of banks are unprofitable and the number of problem banks dropped to 55 during the quarter, the lowest level since 2007. "Overall, the banking industry reported positive results," said FDIC Chairman Jelena McWilliams.

  • That'll really teach them. The Bank of England's supervisory arm, the Prudential Regulation Authority (PRA), has fined Citigroup £43.9 million, or about $56 million, for failing to provide accurate regulatory returns between 2014 and 2018. "Citi failed to deliver accurate returns and failed to meet the standards of governance and oversight of regulatory reporting which we expect of a systemically important bank," BoE Deputy Governor and PRA Chief Executive Sam Woods said. The fine is the largest ever handed out by the PRA. 

  • Google will not tolerate it. Market Crumbs previously wrote about the increasing struggle between Google, which for years used the motto "Don't be evil," and its employees. Last weekend, 200 Google employees rallied over the suspension of two employees who were suspended for accessing information not pertinent to their jobs. The employees, who were activists planning protests against the company's work with U.S. Customs and Border Protection, were fired along with two other Google employees who joined the rally. Google sent a company-wide email saying the employees had been fired for "clear and repeated violations of our data security policies."

  • This is starting to become a trend. Last week, Continental said it will eliminate 5,040 jobs by 2028 as the combustible engine will likely go the way of the dinosaur. Yesterday, Audi announced it will lay off as many as 9,500 employees in Germany by 2025 as the company looks to streamline operations in anticipation of the transition to electric cars. The cuts amount to about 15% of Audi's German workforce. "We are now tackling structural issues in order to prepare Audi for the challenges ahead," Audi CEO Bram Schot said in the statement. "In times of upheaval, we are making Audi more agile and more efficient."