Securities Enforcement Roundup – January 2026

In this issue of our monthly Securities Enforcement Roundup, we highlight top securities enforcement developments from January 2026.

• The US Securities and Exchange Commission (SEC or the Commission) continues to make key personnel decisions in the Division of Enforcement and Division of Examinations.
• The SEC picked up its pace of public company accounting and disclosure cases.
• The SEC continues its focus on the life sciences industry with several insider trading cases.
• The SEC demonstrated its heightened focus on investment advisers with cases involving liability disclaimers, the custody rule, and conflicts of interest.
• Several litigated matters seek to probe the breadth of the landmark SEC v. Jarkesy decision concerning the right to a jury trial in matters involving civil penalties.
• The US District Court for the Southern District of New York found in the SEC’s favor in closely watched litigation over the limits to the SEC’s powers to seek disgorgement.
• The Financial Industry Regulatory Authority (FINRA) issued fines in anti-money laundering (AML) compliance and off-channel communications cases.

SEC PERSONNEL CHANGES CONTINUE

The SEC continued making personnel changes in significant positions in the Division of Enforcement. On January 12, 2026, the SEC announced that Paul H. Tzur and David M. Morrell had been named deputy directors of the Division of Enforcement. [1] Mr. Tzur will oversee the agency’s enforcement program in the Chicago, Atlanta, and Miami Regional Offices, and Mr. Morrell will oversee the agency’s enforcement program in the New York, Boston, and Philadelphia Regional Offices. They join the other deputy directors in the Division of Enforcement: Samuel Waldon, Jason Burt, and Katherine Zoladz. [2]

The SEC also announced on January 20, 2026 that Keith E. Cassidy had been named the director of the Division of Examinations. [3] Mr. Cassidy had served as acting director since May 2024 and previously served as deputy director, acting co‑director, and national associate director of the Technology Controls Program in the Division of Examinations.

SEC BROUGHT SEVERAL NOTABLE PUBLIC COMPANY ACCOUNTING AND DISCLOSURE CASES IN JANUARY

The Commission brought nearly as many public company accounting and disclosure-related cases in January as in all of 2025, confirming that public company cases are still a top priority for the SEC, as discussed in our Current Developments in SEC Enforcement for Public Companies: 2025–2026 report. The SEC charged one company in a settled proceeding with alleged violations related to the reporting of the financial performance of a key business segment and imposed a $40 million penalty. The SEC cited the company’s extensive cooperation and remediation in its press release. The SEC also continued its heightened focus on individuals, charging a number of executives of public companies for their roles in alleged wrongdoing.

For example, on January 27, 2026, in a litigated action, the SEC charged two former senior executives of a now-defunct global data intelligence company for allegedly inflating revenue in a financial accounting and disclosure fraud scheme involving the company’s largest customer, which was also charged along with its former CEO for allegedly aiding and abetting the scheme. [4] The SEC alleges that the former executives engaged in a round-trip accounting scheme to overstate their company’s reported revenue by an average of 27% for fiscal years 2021, 2022, and the first two quarters of 2023. According to the complaint, the scheme relied, in part, on the exchange of grossly inflated invoices, which the company recognized as revenue. The defendants also allegedly fabricated documents or made misstatements to conceal the scheme from the company’s auditors.

Earlier, on January 16, 2026, the SEC instituted settled cease‑and‑desist proceedings against the former CEO and CFO of a biopharmaceutical company, charging them with making misleading statements and omissions regarding feedback received from the US Food and Drug Administration (FDA) on the company’s lead drug candidate. [5] The company, however, was not charged. Specifically, the SEC’s order alleges that, after submitting a New Drug Application for the company’s lead product candidate, the FDA flagged a “significant issue” relating to the drug’s potential efficacy.

The respondents, however, continued to tout the drug’s prospects and did not disclose the FDA’s efficacy concerns. Several months later, when the company disclosed the FDA’s concerns, its stock price dropped 64%, according to the SEC’s order. The respondents agreed to the settlement charging them with violations of Section 17(a)(2) of the Securities Act of 1933 and ordering them to pay civil penalties of $112,500 and $75,000. This action reinforces the SEC’s focus on pharmaceutical company disclosures; nearly all of the public company actions brought by the SEC in 2025 relate to this topic. [6]

Conversely, the SEC in January also voluntarily dismissed two previously filed cases against former executives of public companies. For example, on January 29, 2026, the SEC dismissed its complaint against an executive whom the SEC had charged in 2022 with fraud for inflating the financial performance of a major subdivision of an infrastructure company he managed. [7]

The stipulation for voluntary dismissal of the SEC’s complaint notes that dismissal is “based on the facts and circumstances of this case and its ongoing review of the evidence, including the narrowed scope of the evidence the SEC intended to present at trial,” and “does not reflect the SEC’s position on any other case.”

INSIDER TRADING ENFORCEMENT ACTIVITY: LIFE SCIENCES INDUSTRY IN FOCUS

January saw continued, targeted enforcement activity by the SEC against insider trading and market manipulation in the pharmaceutical and life sciences sector. This trend aligns with the heightened scrutiny we highlighted in our June 2025 update regarding the agency’s increasing focus on the industry and proactive compliance steps companies should consider. [8]

On January 26, 2026, the SEC announced a settled insider trading action against an individual who avoided nearly $20,000 in losses by selling shares of a pharmaceutical company ahead of adverse FDA developments. [9] The individual liquidated a long-held position shortly before the company disclosed the FDA’s position on one of its depression treatments, after which the stock price fell 53%. According to the SEC’s complaint, the trader owed a duty of trust and confidence to a company insider and misappropriated the material, nonpublic information. The SEC charged the trader with violations of Section 10(b) of the Securities Exchange Act of 1934. In settling the matter, the SEC imposed a five-year bar from serving as an officer or director of any public company and ordered disgorgement of $19,680, a civil penalty of $19,680, and prejudgment interest.

On January 14, 2026, the SEC charged an individual consultant and his biopharmaceutical consulting firm with insider trading, finding he traded after obtaining material, nonpublic information relating to confidential clinical trial results while performing consulting services. [10] According to the SEC, the trading generated more than $489,000 in realized and unrealized gains. The securities were purchased through both the consultant’s brokerage accounts and an account held in the name of the firm. As a result, the SEC charged both parties with violations of Section 10(b) and is seeking disgorgement, prejudgment interest, permanent injunctive relief, and civil penalties. The US Attorney’s Office for the District of Massachusetts has also announced criminal charges against the consultant. [11]

On January 6, 2026, the SEC charged three brothers in connection with alleged market manipulation schemes, tender offer fraud, and an insider trading scheme involving pharmaceutical companies, which the agency claims generated approximately $41 million. [12] According to the complaint, the defendants engaged in a range of deceptive tactics, including impersonating physicians, stealing confidential information, publishing falsified clinical data to move stock prices, issuing a fabricated press release to inflate shares, and trading on acquisition tips provided by an investment banker friend. The SEC alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-b, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. The agency is seeking disgorgement, prejudgment interest, permanent injunctive relief, and civil penalties. The US Attorney’s Office for the District of New Jersey has also announced criminal charges against the brothers. [13]

These actions underscore the SEC’s continued focus on rooting out insider trading and market manipulation, particularly in situations where industry participants have early or privileged access to sensitive clinical, regulatory, or transaction-related information. We expect this heightened scrutiny to persist, with sustained enforcement attention across the pharmaceutical and life sciences sectors and other industries where material nonpublic information is closely held.

REGULATED ENTITIES ENFORCEMENT ACTIVITY: LIABILITY DISCLAIMERS, CUSTODY AND COMPLIANCE, AND CONFLICT DISCLOSURES IN FOCUS

Recent actions by the SEC signal continued scrutiny of registered investment advisers, including around three particular risk areas: liability-limiting provisions in advisory agreements, custody rule compliance, and undisclosed conflicts tied to affiliated investments. Two January settlements illustrate how the SEC is approaching these issues and what firms might expect moving forward.

On January 20, 2026, the SEC settled charges against two investment advisers relating to hedge clauses, assignment provisions, and alleged custody rule failures. [14] According to the Order, the firms required clients to sign advisory agreements that included liability disclaimers and assignment provisions that were inconsistent with the advisers’ fiduciary obligations. The SEC also found deficiencies in written policies and procedures addressing these clauses. In addition, the firms were deemed to have custody of client assets without obtaining the required independent public accountant verification. The SEC found willful violations of Section 206(2), Section 205(a)(2), and Section 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-7. The firms agreed to cease and desist, were censured, and paid a combined $150,000 penalty.

On January 16, 2026, the SEC settled charges against an investment adviser involving undisclosed conflicts tied to a SPAC transaction. [15] The SEC alleged that the investment adviser purchased founders’ shares in a SPAC sponsor valued at more than $3 million. The firm then invested over $160 million of client assets into the SPAC transaction, which the SEC alleged was necessary to complete the ultimate business combination. Because the value of the founders’ shares would be impacted by the completion of the merger, the firm had a financial incentive to see the deal close, even if doing so was not in its clients’ best interests. The SEC found that the firm willfully violated Section 206(2) of the Advisers Act by failing to disclose these conflicts.

Following the merger, the sponsor shares increased in value while the firm’s clients’ investments decreased in value. Without admitting or denying the allegations, the firm agreed to cease and desist, accept a censure, and pay a $200,000 penalty.

The SEC is setting clear expectations that advisers must implement and maintain strong operational controls to ensure compliance with regulatory requirements. Regular contract reviews, custody testing, and robust conflict disclosures can meaningfully mitigate enforcement risk.

LITIGATION PROBES REACH OF JARKESY HOLDING

Several cases proceeding in both state and federal court seek to ascertain the breadth of the 2024 landmark decision SEC v. Jarkesy, in which the US Supreme Court held that the SEC violates the Seventh Amendment right to a jury trial when it imposes civil penalties for securities fraud violations in its administrative forum.

On January 8, a federal district court ruled that the SEC can impose industry bans in its administrative forum. In Sztrom v. SEC, the US District Court for the District of Columbia dismissed a complaint challenging an SEC enforcement proceeding against a father and son pair of investment advisors charged with defrauding their clients. [16] The pair argued that the administrative enforcement proceeding—in which the SEC sought to bar them from working in the securities industry—violated their Seventh Amendment rights under Jarkesy, among other infirmities.

Jarkesy had specifically addressed the imposition of civil monetary penalties and found that the Seventh Amendment applied because civil monetary penalties are a remedy at law (rather than equity or admiralty). [17] The nature of the remedy at issue was also a factor in the Supreme Court’s determination that the “public rights” exception to the Seventh Amendment was not available.[18]

In dismissing the Sztrom suit, the district court particularly relied on the public rights exception acknowledged in Jarkesy. [19] The plaintiffs filed a Notice of Appeal with the DC Circuit Court of Appeals on January 12. While the Jarkesy decision curtailed the SEC’s ability to use administrative law judges and procedures when seeking certain monetary remedies, this recent outcome should remind regulated persons and entities that many of the agency’s other enforcement tools remain unaltered.

Aiming to expand Jarkesy’s reach, a registered investment adviser recently urged the Supreme Court of Pennsylvania to adopt Jarkesy’s reasoning with regard to the jury trial right under the Pennsylvania state constitution. The investment adviser is challenging an order from the state’s Department of Banking and Securities assessing approximately $900,000 in monetary penalties for violations of antifraud provisions of the state’s securities laws. The plaintiff claims that the administrative proceeding violated his state and federal constitutional rights. While the lower court rejected the claims, the investment adviser filed a Petition for Allowance of Appeal with the Supreme Court of Pennsylvania on January 8. If the court agrees to hear the case, the outlook is uncertain. On the one hand, the Supreme Court of Pennsylvania has explicitly held that it is “not bound by” the US Supreme Court’s interpretation of analogous federal constitutional provisions. [20] On the other hand, the court has held that the federal constitution “establishes certain minimum levels which are ‘equally applicable to the [analogous] state constitutional provision.’” [21] Jarkesy may dictate, then, that the right to a jury trial in Pennsylvania—at a minimum—extends to enforcement actions by the state’s securities enforcement agency where the charge is analogous to common-law fraud. In any case, in the continuing wake of Jarkesy, market participants should carefully monitor for changes in the securities regulatory landscape at the state and federal level. The suit mirrors a similar—unsuccessful—bid for the Superior Court of Delaware to adopt Jarkesy under that state’s constitution. [22]

SOUTHERN DISTRICT OF NEW YORK TAKES BROAD VIEW OF SEC’S DISGORGEMENT POWER EVEN AFTER VACATUR

On January 21, the SEC announced that it had won a $9.7 million judgment in a fraud case against the founder of a public company, following a remand from the US Court of Appeals for the Second Circuit. The SEC commenced its enforcement action in the US District Court for the Southern District of New York in 2021, alleging that the founder diverted company money to his personal accounts. [23]

The defendant consented to partial judgment, with resolution of the monetary remedies for the remaining count deferred. The district court initially ordered disgorgement of $5.8 million plus interest, but the Second Circuit vacated and remanded, holding that the district court was required to make a determination of pecuniary harm before awarding disgorgement. [24] The Second Circuit further held that the court was required to offset any disgorgement amount by the value of certain securities that the founder had surrendered pursuant to a settlement agreement with the company prior to the SEC’s suit. [25]

On remand, the district court reaffirmed its authority to order disgorgement, finding that both the company and investors had suffered pecuniary harm because of the defendant’s conduct. The court also offset the disgorgement only by a fraction of the amount urged by the defendant, crediting testimony that the surrendered securities had been drastically overvalued. The case demonstrates the significant latitude available to the SEC in seeking disgorgement, even when subject to specific statutorily required findings.

FINRA ISSUES FINES IN AML COMPLIANCE AND OFF-CHANNEL COMMUNICATIONS CASES

On January 16, FINRA censured and fined three affiliated firms $1.1 million because (1) their supervisory systems were not reasonably designed to avoid the sale of unregistered securities and (2) their AML compliance program was not reasonably designed to detect and cause the reporting of suspicious transactions. [26] FINRA alleged that as a result, the firms allowed customers to transact in “millions of shares of low-priced securities” without detecting or reasonably investigating red flags. FINRA also alleged that the firms lacked adequate supervisory systems with regard to consolidated reports. In addition to the fine and censure, the firms undertook to certify remediation within 180 days. Firms should regularly review their supervisory systems to ensure their procedures reasonably comply with AML rules.

On January 30, FINRA fined another firm $750,000 for alleged off-channel communications violations. The firm purportedly failed to supervise its employees’ use of text messages and failed to preserve and review business-related messages from 2019 until 2023, at which point the firm engaged a consultant and revised its practices. [27] FINRA was alerted to the potential violation when depositions for an unrelated arbitration revealed responsive text messages that the firm had not produced. The firm was sanctioned by the arbitration panel for its failure to provide the messages in discovery, and FINRA instituted this separate action.

The case serves as a reminder that while regulators may no longer be actively seeking out standalone off-channel communications cases, compliance with the recordkeeping rules remains important. These types of cases may derive from unrelated matters at any time, particularly if regulators believe that the communications establish other violations or that the failure to preserve communications impedes an investigation or enforcement proceeding.