With Gensler exiting, SEC hits $8.2B record for fines

SEC Chair Gary Gensler is leaving office after overseeing the largest penalty haul in the agency's history, driven primarily by a multibillion dollar judgment against the crypto company Terraform Labs and its founder.

The Securities and Exchange Commission announced Friday that it had brought in $8.2 billion in "financial remedies" in its 2024 fiscal year, which ended on Sept. 30. That far exceeded the previous record of more than $6.4 billion set in its 2022 fiscal year.

More than half of the 2024 haul (56%) came from the SEC's case against Terraform Labs, a now defunct cryptocurrency firm, and its founder, Do Kwon. Terraform agreed in June to pay more than $4.5 billion in disgorgement, prejudgment interest and civil penalties after a jury found the firm guilty of fraud for deceiving investors in its digital assets Luna and Terra USD, which collapsed in value in 2022.

The SEC is unlikely to collect any of that money from Terraform. The firm entered bankruptcy in September and has agreed to use any assets it has to first pay off investors.

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The Terraform case may have pushed the SEC's financial remedies total to a record high. But the agency actually brought fewer enforcement cases than its previous fiscal year. The SEC reported having 583 enforcement actions in fiscal 2024, a 26% decrease from the previous year. 

Big year for off-channel communication, marketing rule, other penalties

Large brokerage and investment advisors also came under the SEC's hammer. Once again, the agency won heavy penalties against firms accused of not doing enough to track and record their employees' use of WhatsApp and similar "off channel" messaging systems in discussions of company business.

The SEC reported Friday its 2024 fiscal year saw it bring cases against 70 firms accused of violations with off-channel communications, bringing in roughly $600 million in penalties. As in previous years, the allegations fell on some of the biggest names in wealth management.

In August, for instance, the SEC hit Ameriprise, Edward Jones, LPL Financial, Raymond James and other large regional firms with nearly $393 million in penalties over off-channel communications. The SEC and the Commodities and Futures Trading Commission, which regulates options markets, have levied more than $3 billion in fines for these sorts of violations.

The SEC also noted that Morgan Stanley agreed to pay $166 million in prejudgment and disgorgement and $83 million in civil penalties over allegations that one of its traders had disclosed non-public information to buyers of stock in a large sale known as a "block trade." The case also resulted in a $250,000 civil penalty against Pawan Passi, the former head of the firm's equity syndicate desk. 

And in September, the SEC secured nearly $80 million from the registered investment advisory Macquarie Investment Management Business for allegedly overvaluing 4,900 largely illiquid collateralized mortgage obligations held in 20 advisory accounts.

The SEC also won big penalty amounts against smaller firms. In September, for instance, it imposed $1.2 million in fines on nine advisory firms accused of violating its marketing rule. That rule, adopted in 2024, generally requires firms to include verifiable statements in advertisements or other communications to current or prospective clients.

The SEC also credited firms that cooperated with its investigations or even reported suspected violations on their own after discovering them. In one of its recent regulatory sweeps over violations related to off channel communications, for instance, it imposed no penalties on the broker-dealer Qatalyst Partners, which it praised for cooperating with its probe. 

The announcement of the record tally for financial remedies came a day after Gensler confirmed he would step down as SEC chair on Jan. 20, when President-elect Donald Trump is scheduled to be inaugurated. Trump had vowed on the campaign trail to fire Gensler "on day one."

"The [SEC's] Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable," Gensler said in a statement Friday. "As demonstrated by this year's results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike."

Of the SEC's 583 enforcement actions, 431 stand-alone cases initiated by the SEC. Ninety-three were "follow-on" proceedings seeking to bars or suspensions following criminal convictions, civil injunctions or other orders. And 59 actions were against firms alleged to be late in making required SEC filings.