2024 Closes with a Record for Regulatory Enforcement $8.2 Billion
According to an article in Financial Planning this week, the end of 2024 marks a turning point for the securities industry, as regulatory enforcement under SEC Chair Gary Gensler concludes with a record $8.2 billion in penalties, largely driven by cryptocurrency cases like Terraform Labs.
Beyond crypto, regulators targeted unsubstantiated AI claims, lapses in communication tracking, and inadequate protections for elderly investors. Sweeps accounts also came under scrutiny for failing to ensure fair returns. Meanwhile, a landmark Supreme Court decision and other legal challenges questioned the SEC’s and FINRA’s authority, setting the stage for potential deregulation as Donald Trump prepares to return to the White House.
The following were reportedly the top five regulatory and compliance trends in the securities industry for 2024.
“Washing” Claims Under Scrutiny
Regulators ramped up their focus on deceptive marketing practices, particularly in areas like artificial intelligence (“AI-washing”) and environmental, social, and governance (“green-washing”) investments. These cases highlighted firms overstating their use of advanced technologies or the environmental benefits of their strategies to attract investors.
For instance, in March, the SEC fined two advisory firms $400,000 for falsely claiming their AI tools offered cutting-edge investment advice when, in reality, they functioned like standard robo-advisors.
Similarly, Invesco reportedly faced a $17.5 million penalty for misleading claims about its ESG investment strategies, underscoring the growing scrutiny around firms’ promises to integrate environmental and social concerns into financial returns.
Sweeps Account Allegations
The practice of managing uninvested brokerage cash in “sweeps” accounts sparked a wave of lawsuits and regulatory investigations in 2024. These accounts, which sweep idle cash into low-interest-bearing options, became a lightning rod for criticism after Morgan Stanley was sued for offering rates as low as 0.01%.
Subsequent class-action lawsuits targeted major players like Wells Fargo, Schwab, and Ameriprise, accusing them of enriching themselves at the expense of investors.
Regulators have also taken notice, with firms disclosing SEC inquiries into their sweeps policies.
Elder Fraud Prevention Efforts
Elder fraud continued to plague the securities industry in 2024, with high-profile cases shedding light on the vulnerabilities of senior investors. For example, Charles Schwab was reportedly accused of failing to prevent a 92-year-old client from withdrawing $278,000 to buy gold bars for scammers.
Another lawsuit revealed that Schwab and Bank of America allegedly allowed an elderly couple to convert $18.5 million into cryptocurrency payments that were ultimately stolen. Despite these alarming incidents, many firms still struggle to implement robust safeguards against elder fraud.
The North American Securities Administrators Association reported over 1,300 investigations involving older investors last year, emphasizing the need for proactive measures to protect this vulnerable demographic.
Regulatory Rollback and Legal Challenges
The Supreme Court’s decision in SEC v. Jarkesy marked a pivotal shift in regulatory enforcement. By ruling that the SEC’s reliance on administrative law judges (ALJs) violated defendants’ rights to jury trials, the court effectively curtailed the agency’s ability to resolve cases internally.
This decision has since sparked questions about the validity of past enforcement actions and the authority of other regulatory bodies like FINRA. Additionally, lawsuits challenging FINRA’s methods have called for greater transparency and checks on its powers. With Donald Trump returning to the White House, the stage is set for further deregulation, potentially reducing the scope and intensity of compliance enforcement.
Off-Channel Communication Penalties
Tracking and recording business-related communications remained a major compliance challenge in 2024, as the SEC and the Commodities and Futures Trading Commission levied over $3 billion in fines for violations.
High-profile settlements included nearly $393 million in penalties against firms like Ameriprise, Edward Jones, and LPL Financial for failing to monitor advisors’ off-channel communications. These violations often involved the use of unapproved platforms like personal messaging apps, which regulators argue make it difficult to ensure compliance and transparency.
However, the industry’s pushback has grown, with trade groups filing lawsuits to challenge the SEC’s methods for determining penalty amounts.
Free Consultation with Securities Fraud Attorneys
If you have suffered losses with your investments, please contact the securities attorneys at The White Law Group. For a free consultation, please call the offices at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
We represent investors in FINRA arbitration claims in all 50 states. Our attorneys have recovered millions of dollars from many brokerage firms in the past.
The Financial Industry Regulatory Authority (FINRA) operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.
Last modified: December 26, 2024
