Over the weekend, the New York Times published an extensive article looking at corporate penalties under the Trump administration and concluding that there has been “a sharp decline” in financial penalties against banks and big companies accused of wrongdoing compared to those imposed during the Obama administration. The Times based its conclusion on analyses of government data and interviews with more than 60 former and current federal officials. With respect to its analysis of SEC enforcement, the Times consulted with legal experts and identified every case the SEC filed between mid-May 2015 and September this year, reflecting back-to-back 20-month periods in the Obama and Trump administrations, spanning over 2100 cases.
In comparing cases filed during the first twenty months of the Trump presidency with the final twenty months of the Obama presidency, the article reports:
- A 62% decline in penalties imposed and illicit profits ordered returned by the SEC ($1.9 billion under the Trump administration vs. $5 billion under the Obama administration);
- A 72% drop in corporate penalties from the Justice Department’s criminal prosecutions ($3.93 billion under the Trump administration vs. $14.15 billion under the Obama administration) with a similar percent drop in civil penalties against financial institutions;
- The SEC ordered banks to pay $1.7 billion during Obama’s final twenty months in office, which is nearly four times as much as the first twenty months of the Trump era, and the Trump Justice Department has only brought 17 such cases against banks compared to 71 during the Obama period; and
- The SEC charged “far fewer high-profile defendants” under Trump, including less than half as many banks and 40 percent fewer public companies. The Times noted a surge in cases against public companies in the summer of 2018, but noted many of those cases underscored the SEC’s focus on smaller defendants who are accused of defrauding individual investors.
The Times concluded that other than the Commodity Futures Trading Commission, an agency where a new enforcement director has presided over an uptick in penalties, the same approach extends across the federal financial regime. The article highlights a few major corporate investigations and their resolutions, or lack thereof, including investigations into Barclays and Royal Bank of Scotland (“RBS”). Barclays faced demands from the Obama-era Justice Department that it pay nearly $7 billion to settle civil claims related to mortgage investments it sold that the DOJ alleged assisted in fueling the 2008 financial crisis. In March 2018 under the Trump administration, Barclays settled with the Justice Department for a much reduced $2 billion. RBS faced a criminal investigation toward the end of the Obama administration as it was suspected of defrauding investors in mortgage-backed securities. However, the Trump-era Justice Department decided the case should not involve criminal charges, and RBS ultimately reached a $4.9 billion civil settlement.
The article also discusses possible reasons for the decline in enforcement and penalties other than directives from the top, including recent Supreme Court rulings that have limited the SEC, a soaring stock market that has left the agencies with a smaller pipeline of cases, the Trump administration’s heavier emphasis on immigration, violent crime and drugs, growing skepticism over corporate penalties, and a leadership vacuum in the DOJ’s criminal division until July of this year. The Times also notes that with respect to the DOJ, Deputy Attorney General Rod Rosenstein declared earlier this year that the DOJ wanted to “avoid imposing penalties that disproportionately punish innocent employees, shareholders, customers and other stakeholders” and has promised that the DOJ would try to prevent multiple law enforcement agencies from “piling on” corporate fines.
Although the New York Times article provides some good news for those companies currently facing government investigations, fewer enforcement actions and smaller penalties is not a reason to decrease compliance efforts. Actions that a company takes today may be subject to investigation or litigation in the future and there may be a different administration in charge at that time or the current administration may have changed priorities by that time. Indeed, it was announced yesterday that Attorney General Jeff Sessions resigned at the request of President Trump and the new Attorney General may usher in a change in priorities.