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SEC officials rebuke criticism of agency's drop in enforcement actions

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SEC officials rebuke criticism of agency's drop in enforcement actions

Top SEC officials dismissed criticisms of a dip in enforcement actions and penalties under the agency's current leadership during a May 16 congressional hearing.

Enforcement actions and penalties have fallen considerably under SEC Chairman Jay Clayton, who took control of the agency amid a push across the nation's capital for deregulation.

In the first half of fiscal year 2018, the SEC issued a total of 232 enforcement actions, down from 292 in the same period a year earlier and lower than earlier periods. The agency collected monetary penalties totaling $102.5 million during the six-month stretch, marking a 92.9% drop-off from the $1.45 billion issued in the first half of fiscal year 2017, according to data from Urska Velikonja, a Georgetown University law professor.

Speaking during a House Financial Services Committee subcommittee hearing, the SEC Enforcement Division's co-directors, Stephanie Avakian and Steven Peikin, challenged the use of that data.

"We don't think that that's the way to look at the effectiveness of our program," Avakian said during the hearing. "It's important to look at the nature and quality of our actions."

Instead, assessing the SEC's Enforcement Division should rely on a "qualitative analysis," she said. The division is focused on the impact that its enforcement actions are having on the broader market, whether it is stopping ongoing fraud and what measures it is taking to protect retail investors, Avakian said.

The agency has taken particular care to crack down on the initial coin offering sector, which Peikin said is one of the greatest risks facing investors today, as well as hacking, data breaches and virtual currencies.

The decline in enforcement actions marks a detour from the SEC's previously held "broken windows" enforcement strategy under former SEC Chair Mary Jo White.

The strategy revolved around cracking down on any infraction, no matter the size, to create a chilling effect across Wall Street. In a 2013 speech, White said that minor violations "can foster a culture where laws are increasingly treated as toothless guidelines."

Several Republican lawmakers cheered the SEC's move away from that method. Rep. Bill Huizenga, R-Mich., chairman of the House Financial Services Committee's subcommittee on capital markets, securities and investments, said the broken windows strategy "lacked meaningful investor protections."

"We should not evaluate the true effectiveness of a regulatory agency or its enforcement program solely based on how many headlines it can generate," Huizenga said.