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The SEC Announces Record-Setting Enforcement Actions in 2014

Earlier this week the Securities and Exchange Commission announced that, for the fiscal year ending in September 2014, the agency filed a record-setting 755 enforcement actions. This announcement caught my attention for two reasons.

First, the SEC touted the fact that its enforcement actions covered a wide range of misconduct, including a number of “first ever” cases. Going forward, the agency pledged to “continue to bring its resources to bear across the entire spectrum of the financial industry, from complex accounting fraud and market structure cases, to investment adviser and municipal securities cases, microcap fraud, insider trading, and cases against gatekeepers.” Why does this matter for DiscoverReady and our clients? Because in this regulatory environment, virtually every corporation faces the risk of an enforcement action by the SEC, and the onerous e-discovery burdens often imposed by those actions. It’s not just the financial services industry and publicly traded companies that bear this risk: even the law firms, accounting firms, and compliance professionals that serve them (the “gatekeepers”) are under scrutiny. And every company doing business abroad, regardless of size or publicly traded status, could land in the SEC’s crosshairs in a Foreign Corrupt Practices Act investigation. So if you think your organization doesn’t need to worry about attention from the SEC, this announcement should change your mind.

Second, the SEC explained that the enforcement activity surge was enabled by the “innovative use of technology,” and the enhanced use of data and quantitative analytical tools to detect misconduct. So in addition to bringing new types of claims against a wider spectrum of organizations, the agency is leveraging technology to better identify violations. On one hand, this new capability creates heightened concern for companies around their compliance efforts. But on the other hand, they can take advantage of the agency’s progressive approach to data analytics, as it seems to be one of the federal agencies most receptive to the use of such tools by organizations responding to document demands. So companies faced with broad discovery requests implicating large volumes of documents are well-positioned to approach the SEC about using predictive coding, other forms of technology assisted review, and other advanced analytics to improve the efficiency and lower the cost of those productions.

At DiscoverReady, our clients certainly felt the impact of the increased regulatory activity by the SEC in 2014. Faced with unreasonably broad requests for information, and impossibly tight deadlines for production, they turned to us for help in managing these discovery burdens. The agency has promised another wild enforcement ride for 2015 – so keep your seatbelts buckled.

Maureen O'Neill