SEC sets record in crackdown on advisers, B-Ds

The Securities and Exchange Commission engaged in an unprecedented crackdown on investment advisers over the last year, contributing to an overall surge in agency enforcement.

The SEC announced today that it filed 146 enforcement actions against investment advisers and investment companies during the 2011 fiscal year, which ended Sept. 30. That number represents a 30% increase over the previous fiscal year and a nearly 200% increase since 2002, when the SEC filed 52 cases.

The SEC took 112 enforcement actions against broker-dealers, a 60% boost from fiscal year 2010.

Overall, the SEC filed 735 enforcement actions, also a record number. The cases resulted in disgorgements and penalties totaling $2.806 billion.

The agency credited the increased activity to a reorganization of its Enforcement Division. The overhaul included reforming the tips and complaints process and establishing specialized units that allow the division to operate more like a prosecutor’s office.

The enforcement arm can now more effectively pursue nefarious activities involving complex products and practices, such as those that contributed to the financial crisis, the agency asserts.

“We continue to build an unmatched record of holding wrongdoers accountable and returning money to harmed investors,” SEC Chairman Mary Schapiro said in a statement.

The SEC ‘s enforcement results release follows a similar announcement last month by the North American Securities Administrators Association Inc. The group said that state regulators reported a 51% increase in enforcement actions that led to $14.1 billion being returned to investors.

The SEC highlighted three investment adviser and broker dealer cases. One was an action against affiliates of The Charles Schwab Corp. for allegedly misleading investors about mutual funds that were laden with mortgage-backed securities. Another centered on AXA Rosenberg Group LLC and its founder, Barr Rosenberg, who was accused of papering over an error in an asset-management computer model. The third involved Merrill Lynch Pierce Fenner & Smith Inc.’s purportedly misusing customer information for proprietary trading and surreptitiously charging trading fees.

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The agency said that the Schwab paid more than $118 million to settle, while AXA Rosenberg ponied up $217 million for investor losses as well as a $25 million penalty.

The SEC also trumpeted the fact that it took 15 actions against executives involved in the financial crisis during fiscal year 2011. In the last two and a half years, the agency said, it has filed 36 separate actions against 81 defendants resulting in $1.97 billion in disgorgement.

Even when it conducts such crackdowns, though, critics have accused the SEC of slapping alleged swindlers on the wrist.

For instance, Citigroup Inc. recently settled for $285 million a case centered on misleading investors about $1 billion worth of risky collateralized debt obligations. In 2010, the agency reached a $550 million settlement with Goldman Sachs Group Inc. over the company’s sale of mortgage securities. Both examples involved financial industry behemoths for whom the payments represented pocket change.

In an appearance earlier this week at the Securities Industry and Financial Markets Association meeting in New York, Ms. Schapiro defended her agency’s approach to enforcement. “The settlements are not feeble,” Ms. Schapiro said. “They approximate the kind of results we would get if we would go to trial.”

The SEC touted its enforcement record just as the Senate is about to consider an appropriations bill that would significantly boost its budget.

“We could gainfully employ many more people in enforcement and examination,” Ms. Schapiro said at the SIFMA conference.