The last thirty days in September, the end of the US federal government's fiscal year, is generally an important time to analyze enforcement activity by the US Securities and Exchange Commission ("SEC") and the US Commodity Futures Trading Commission ("CFTC").

Because all enforcement cases must be reviewed and approved by the SEC and CFTC Commissioners, the end of the fiscal year often poses a logjam in processing enforcement recommendations. As a result, enforcement staff and leaders at the SEC and the CFTC must prioritize enforcement recommendations that they want to have approved by the Commissioners before the end of the fiscal year. Thus, in our experience, enforcement cases filed at the end of the fiscal year (and for the SEC, particularly ones accompanied by a press release as opposed to a typical administrative or litigation release), are strong indicators of issues currently in the regulators' crosshairs and set the tone for enforcement hotspots and priorities for the next fiscal year.

Key takeaways:

  • A number of SEC cases reflect the enforcement message that self-reporting of misconduct by both public companies and financial firms as part of proactive cooperation will be rewarded, including potentially with settlements involving no civil penalties.
  • The SEC will be aggressive in going after both companies and financial firms that include contract terms in employee agreements that are perceived to deter whistleblower complaints.
  • The SEC is willing to pursue enforcement cases against financial firms and public companies based on strict liability violations that do not require intentional or even negligent misconduct.
  • The SEC continues to scrutinize statements touting ESG capabilities and activities.
  • Also, the CFTC's enforcement actions in September reflect its ongoing efforts to address deficient supervisions. The CFTC cases during this period also reflect a focus on trading of precious metals.

In this short video, Baker McKenzie Partner Peter Chan, a former SEC Assistant Director of Enforcement, provides his "inside baseball" insights regarding the importance of the timing of some of these enforcement actions.

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