In his remarks this week at the 34th Annual Current Financial Reporting Issues Conference, SEC Commissioner Michael S. Piwowar took another wisecrack at the way the SEC measures the effectiveness of its enforcement efforts. Speaking to an audience of primarily non-lawyers who prepare financial statements, Piwowar asked them to

imagine a world where GAAP or other reporting standards did not exist – where management could develop its own numbers based on its own poorly-defined criteria.  Management might be tempted to create numbers that provide the illusion of performance but in reality are largely irrelevant to measuring the actual performance of that organization.  Reported numbers might be distributed for public consumption without clear disclosure as to how they were derived.  These numbers could also be touted in press releases and other public statements by management in order to paint a flawed view of the organization’s productivity and effectiveness.  But enough about the SEC’s enforcement statistics.[3]


Piwowar's footnote above cites to a recent study and forthcoming law review article by Urska Velikonja, an Associate Professor at Emory University School of Law. After reviewing 15 years of enforcement data, Prof. Velikonja asserts in her article that the SEC's reported statistics are "flawed" for several reasons. She writes that, among other things, the SEC's statistics double or triple count certain enforcement actions each year, and overstate monetary penalties ordered by including "disgorgement orders offset by restitution ordered in a parallel criminal prosecution, civil fines imposed by and paid to FINRA or the exchanges, and penalties ordered but waived due to defendant’s financial inability to pay."

Based on her research, Prof. Velikonja concludes that the SEC’s reported statistics are problematic because they

suggest the presence of bogus trends and obscure actual trends; they reveal non-problems and disguise real problems. In addition, reported statistics conceal whether and where SEC enforcement is lacking, and encourage the agency to bring easy-to-prosecute strict-liability offenses instead.

SEC Enforcement Director Andrew J. Ceresney stated last month that the SEC disagreed with a number of Prof. Velikonja's observations and that the agency has "consistently and transparently reported our enforcement action numbers for years, including this year when we reported a record number of standalone cases after backing out delinquent filings and follow-on administrative proceedings." Ceresney and Velikonja were reportedly scheduled to meet in late September 2015 to discuss these issues.


Commissioner Piwowar took aim at the SEC's enforcement statistics last year, as well, in his remarks at Securities Enforcement Forum 2014. He criticized the SEC's longstanding practice of measuring its enforcement efforts by metrics such as the total number of cases brought or the amount of monetary sanctions in a given year, and urged the Commission to instead focus on "measuring outcomes, not outputs."