A total of 114 companies accused of violations by the SEC reached settlements with the government in the first six months of 2011, setting a pace that could make this the second-highest year for corporate settlements since the passage of SOX nine years ago.
The number of company settlements jumped 43 per cent in the first half of 2011 from the previous year, while settlements with individuals declined 12 per cent to 230, according to NERA Economic Consulting’s biannual SEC Settlements Trends report.
While the make-up has shifted between companies and individuals, the total number of settlements is on track to slightly exceed the 681 reached in 2010.
The encouraging news for IROs is that company settlements for financial misstatements and corporate insider trading are down. But other categories of violations, including bribery, (Foreign Corrupt Practices Act violations), misappropriation of client funds and trading and reporting violations are up.
Until an uptick in 2010, the total number of settlements had been steadily declining since 2003 when 889 settlements were reached in the first full year post-SOX.
That year 222 defendant companies and 667 individuals settled with the SEC. The following year a record 250 companies reached settlements along with 587 individuals.
The average value of company settlements declined to $6 mn in the first half of 2011, down from an average of $18.5 mn in the post-SOX period 2003-2010, while the average individual settlement hit an all-time high of $4.48 mn.
The individual fines were heavily skewed by several large individual judgments, including $310 mn and $44 mn judgments against individuals involved in two separate Ponzi schemes, a $54 mn settlement against a Pink Sheets company founder for backdating options and a $45 mn settlement against former Qwest CEO Joseph Nacchio for financial misstatements.
For individuals, the proportion of settlements that also included a monetary fine declined to 49.1 per cent from an average of 53.4 per cent during the post-SOX period 2003-2010, while company settlements that included a monetary fine increased to 56.1 per cent from an average of 54.4 per cent.
Settlements are usually the result of several years of investigation and litigation, so the actual number in any given year is not directly related to the enforcement actions taken in that year.
[Article by Brad Allen, IR magazine]