The SEC’s Enforcement Blitz: Record Actions in Q1 2025

The Securities and Exchange Commission (SEC) isn’t exactly easing into fiscal year 2025—it’s hitting the ground at a full sprint. With 200 enforcement actions logged between October and December 2024, including 118 standalone cases, the agency is making it clear that no stone is being left unturned in its mission to protect investors and uphold market integrity. October alone set a blistering pace, with 75 actions filed, marking the busiest single month since the turn of the millennium.

From alleged bribery schemes and undisclosed conflicts of interest to financial misstatements and frauds targeting everyday investors, the SEC has taken aim at a broad spectrum of violations. Even artificial intelligence didn’t escape scrutiny, with misleading claims about AI capabilities landing on the SEC’s radar.

Chair Gary Gensler isn’t shy about celebrating the agency’s tenacity, describing these enforcement efforts as a win for both investors and issuers. “I’m proud of the incredible work of the Division of Enforcement and colleagues around the agency to track down misconduct and protect the investing public,” he said.

Sanjay Wadhwa, the SEC’s Acting Director of Enforcement, took it a step further, calling this the “busiest start to a fiscal year” in his more than 20 years with the agency. If there’s a metaphorical pedal, the SEC’s foot is firmly planted on it.

But don’t think this is just a first-quarter flex. The momentum has carried over into 2025, with 40 more enforcement actions filed in just the first two weeks of January. As the year unfolds, we’re seeing the SEC’s focus sharpen on key issues like transparency, fairness, and accountability.

In the coming sections, we’ll explore some of the standout cases from this wave of enforcement—stories that highlight not just the SEC’s priorities but also the broader lessons for compliance professionals navigating today’s complex regulatory landscape. Let’s dig in.

LPL Financial Faces $18 Million SEC Penalty for AML Failures

The SEC has charged LPL Financial LLC with significant anti-money laundering (AML) violations, culminating in an $18 million civil penalty and a commitment to improve its AML policies. Spanning from May 2019 to December 2023, LPL’s violations included widespread failures in its customer identification program (CIP), such as neglecting to verify customer identities and failing to shut down thousands of high-risk accounts, including cannabis-related and foreign accounts prohibited under its own AML policies.

These failures reflect more than procedural lapses; they expose vulnerabilities in the securities markets. Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, emphasized the broader implications, noting that broker-dealers are legally required to identify customers and conduct due diligence to combat money laundering. LPL’s shortcomings, she explained, undermined these critical safeguards.

The SEC found that LPL had willfully violated Section 17(a) of the Securities Exchange Act of 1934 and its accompanying rules. While LPL neither admitted nor denied the charges, it agreed to a censure and a cease-and-desist order, alongside continuing its engagement with a compliance consultant. This consultant will review and recommend necessary reforms to LPL’s AML framework, signaling the SEC’s insistence on structural change within the firm.

GrubMarket Hit with $8 Million SEC Penalty for Overstating Revenue by $550 Million

The SEC has charged GrubMarket Inc., a California-based e-commerce food distributor, with misleading investors by overstating its historical revenues by $550 million. The violations occurred between November 2019 and February 2021, during the company’s private Series D fundraising round, where it raised $80 million. GrubMarket provided prospective investors with financial information that it should have known was unreliable, as it used a different, lower set of figures in its tax filings and other corporate contexts. Investors, unaware of the discrepancies, relied on the inflated revenue data to make investment decisions.

SEC Associate Director Mark Cave highlighted the gravity of the situation, emphasizing that investors are entitled to accurate and reliable financial data when evaluating opportunities. “GrubMarket provided financials that painted a misleading picture of the company’s historical performance,” Cave stated, calling the practice inconsistent with the company’s obligations to its investors.

The SEC found GrubMarket in violation of antifraud provisions of federal securities laws. Without admitting or denying the charges, the company agreed to an $8 million civil penalty and a cease-and-desist order. This case underscores the critical importance of transparency and accuracy in financial reporting, particularly for startups soliciting investor funds.

Unregistered Broker Scheme Costs Paul McCabe and PMAC Consulting $3 Million in SEC Settlement

The SEC has charged Paul John McCabe Jr. and his unregistered firm, PMAC Consulting LLC, with illegally brokering transactions involving pre-IPO stocks, culminating in a $3 million settlement. Despite being barred by FINRA from broker activity in 2016, McCabe circumvented regulations by continuing to facilitate transactions through his firm. Over several years, McCabe received more than $16 million in transaction-based compensation, acting as an intermediary for numerous pre-IPO transactions involving nearly 100 sellers.

The SEC found that McCabe’s activities included negotiating transaction terms, providing valuations, advising purchasers, and working directly with issuers—roles typically reserved for registered broker-dealers. Sheldon Pollock, Associate Director of the SEC’s New York Regional Office, emphasized the importance of broker-dealer registration in maintaining market fairness and accountability. “McCabe tried to circumvent the registration requirements that ensure transparency in securities markets,” Pollock stated, reinforcing the SEC’s commitment to policing improper broker activity in pre-IPO transactions.

The order concluded that McCabe and PMAC violated federal securities laws governing broker-dealer registration. Without admitting or denying the findings, McCabe agreed to industry and penny stock bars, in addition to the $3 million civil penalty. He also consented to a cease-and-desist order to prevent future violations.

Investment Adviser Misappropriates Over $20 Million in Client Funds

The SEC has charged Scott J. Mason, a former investment adviser from Pennsylvania, along with his companies Rubicon Wealth Management LLC and Orchard Park Real Estate Holdings LLC, for misappropriating more than $20 million from at least 13 advisory clients. Over a decade-long scheme, Mason diverted client funds for personal use, including paying country club dues, funding other clients, and purchasing a stake in a miniature golf course. Mason concealed his misconduct by forging client signatures, falsifying account statements, and providing fraudulent tax documents.

According to the SEC, Mason's actions involved widespread deception and abuse of trust, with clients relying on him to manage their investments ethically. “As alleged, Mason repeatedly abused that trust to enrich himself at their expense,” said Nicholas P. Grippo, Regional Director of the SEC’s Philadelphia Regional Office. Mason’s efforts to cover his tracks further highlight the depth of his fraudulent activities, with fake documentation enabling the scheme to continue for years undetected.

The SEC filed its complaint in the U.S. District Court for the Eastern District of Pennsylvania, alleging violations of the antifraud provisions of federal securities laws. Mason, Rubicon, and Orchard Park have consented to permanent injunctions against future violations. The court will later determine the amounts for disgorgement, prejudgment interest, and civil penalties, pending final approval of the settlement.

Vanguard Settles Charges for Misleading Investors, Agrees to Pay $106 Million

The Securities and Exchange Commission (SEC) has announced that Vanguard Group, Inc. will pay $106.41 million to settle charges related to misleading statements regarding capital gains distributions and tax consequences for retail investors in its Vanguard Investor Target Retirement Funds (Investor TRFs). The settlement amount will be distributed to affected investors. Vanguard’s misleading disclosures led to large, unexpected capital gains distributions, significantly impacting retail investors who held their funds in taxable accounts.

The SEC’s investigation found that after Vanguard lowered the minimum investment amount for its Vanguard Institutional Target Retirement Funds (Institutional TRFs), many retirement plan investors switched to these funds due to their lower expenses. In doing so, Vanguard had to sell underlying assets in the Investor TRFs, leading to larger-than-expected capital gains distributions for those who did not switch funds. These unexpected distributions created a tax liability for investors, depriving them of the potential compounding growth of their investments.

The SEC’s order also highlighted that Vanguard’s 2020 and 2021 prospectuses were misleading. While the documents disclosed that capital gains distributions could vary, they failed to mention that the distributions would increase significantly due to the redemptions triggered by the switch to Institutional TRFs. Additionally, Vanguard did not have policies in place to ensure accurate disclosures about the tax implications of these changes, which led to violations of the Advisers Act, Securities Act, and Investment Company Act.

As part of the settlement, Vanguard will pay a $13.5 million civil penalty and provide $92.91 million in relief to investors. This settlement is part of broader investigations, including parallel actions by state regulators in New York, Connecticut, and New Jersey. Vanguard also agreed to pay an additional $40 million to settle an investor class action lawsuit. The total amount will be distributed to investors through a Fair Fund, marking an effort to compensate those harmed by Vanguard’s actions.

SEC Charges Digital Currency Group and Former Genesis CEO for Misleading Investors

The Securities and Exchange Commission (SEC) has charged Digital Currency Group Inc. (DCG) and Soichiro “Michael” Moro, the former CEO of Genesis Global Capital LLC, with misleading investors about Genesis’s financial condition. The charges stem from misleading statements made following a $1 billion loss caused by a default from Three Arrows Capital, one of Genesis’s largest borrowers. The settlement requires DCG and Moro to pay a combined $38.5 million in civil penalties.

The SEC’s investigation revealed that, after the default in June 2022, DCG and Moro downplayed the impact of the loss on Genesis and misrepresented the company’s financial stability. Moro made false statements on social media, claiming Genesis had a strong balance sheet and had mitigated the risk from the default. These misleading tweets were further amplified by DCG executives, giving the impression that the company was financially secure. In reality, DCG did not transfer any capital to Genesis, despite claims to the contrary.

The SEC emphasized the importance of transparency, especially during financial turmoil, and criticized DCG and Moro for failing to accurately disclose the challenges Genesis faced. The misleading communications undermined investor confidence and violated securities laws. The charges are based on violations of Section 17(a)(3) of the Securities Act of 1933, which prohibits companies from making false or misleading statements.

DCG and Moro have agreed to a cease-and-desist order without admitting or denying the SEC’s findings. As part of the settlement, DCG will pay $38 million, while Moro will pay $500,000. The SEC’s enforcement action underscores the Commission’s commitment to holding companies accountable for misrepresenting financial conditions to investors.

SEC Charges Arete Wealth Broker-Dealer and Advisory Firms, Personnel in Connection with Illegal Securities Offering

The Securities and Exchange Commission (SEC) has charged Arete Wealth Management LLC and Arete Wealth Advisors LLC, along with several key personnel, including Joey Miller, Jeff Larson, and Randy Larson, for fraudulent activities and violations related to an unapproved securities offering. The charges stem from their involvement in a scheme that defrauded investors through a sham oil-and-gas company, Zona Energy Inc., in which the defendants sold more than $8 million worth of shares to Arete clients, violating securities laws by "selling away" without approval.

From October 2018 to May 2020, despite Arete not authorizing the sale of Zona securities, Miller, Jeff Larson, and Randy Larson facilitated the sale of shares through personal communications, bypassing Arete’s surveillance systems. They allegedly misled investors about the value and risks of Zona shares. The SEC’s complaint also includes charges against UnBo (Bob) Chung, the Chief Compliance Officer of Arete Wealth Advisors, for covering up the fraudulent activities by pressuring affected clients to sign misleading settlement agreements, further exacerbating the harm done to investors.

The SEC has also settled charges against Michael Sealy for acting as an unregistered broker-dealer in connection with the sale of Zona shares, agreeing to a civil penalty of $200,000 and a 12-month suspension from participating in penny stock offerings. The SEC’s action against the Arete entities and personnel highlights their failure to act responsibly after the fraudulent conduct was discovered and the cover-up that followed, resulting in additional victimization of the defrauded investors.

The SEC’s complaint charges Arete Wealth Management with recordkeeping violations and Arete Wealth Advisors with antifraud and compliance rule violations. The charges against Chung and other personnel include aiding and abetting these violations. The SEC seeks permanent injunctions, civil penalties, and officer-and-director bars for the involved parties, emphasizing the need for financial institutions and their personnel to uphold integrity and compliance.

SEC’s Aggressive Start to Fiscal Year 2025 Sets the Tone for Ongoing Enforcement Amidst Uncertainty

The Securities and Exchange Commission (SEC) is wasting no time in fiscal year 2025, signaling its determination to tackle a wide range of financial misconduct head-on. With an unprecedented 200 enforcement actions filed between October and December 2024—including 118 standalone cases—it's clear that the agency is actively pursuing its mission to protect investors and uphold market integrity. October alone set the pace with 75 actions, making it the busiest month since 2000. From bribery schemes and conflicts of interest to misleading AI claims and financial frauds, the SEC is targeting a broad spectrum of violations, sending a clear message that no stone will be left unturned.

Chair Gary Gensler has praised the SEC’s efforts, calling them a win for investors and issuers alike. The intensity of the agency’s work is reflected in the words of Acting Director of Enforcement, Sanjay Wadhwa, who described the start of fiscal year 2025 as the busiest he’s seen in over 20 years. This momentum hasn’t slowed, as 40 more enforcement actions were filed in just the first two weeks of January 2025, continuing the SEC’s focus on transparency, fairness, and accountability.

However, as the SEC continues to ramp up its enforcement activities, the future of its regulatory landscape remains uncertain. With the upcoming presidential transition and the possibility of a Trump administration re-entering the White House, there is a great deal of ambiguity surrounding the Commission's approach to enforcement. A shift toward a more business-friendly approach could potentially alter the SEC's priorities, particularly in areas like cryptocurrency regulation, cybersecurity, and corporate governance. This adds an additional layer of complexity for compliance professionals, who must navigate not only the current regulatory climate but also the looming uncertainty regarding how enforcement may evolve in the coming years.

As the SEC presses on, it is clear that compliance professionals must stay vigilant in navigating an increasingly complex regulatory environment. The cases highlighted—ranging from AML violations to misleading financial disclosures—serve as a reminder of the agency’s commitment to ensuring financial institutions and individuals adhere to the highest standards of ethical conduct. With the SEC’s focus sharp and its resolve stronger than ever, organizations must be prepared to meet the heightened scrutiny and take proactive steps to ensure they comply with the ever-evolving regulatory requirements—especially as they brace for potential changes in enforcement priorities in the near future.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.