The co-directors of the U.S. Securities and Exchange Commission’s Enforcement Division, Stephanie Avakian and Steven Peikin, recently released the SEC division’s 2017 annual report and took the opportunity to highlight their enforcement priorities. The co-directors stressed their commitment to vigorously enforce the federal securities laws to achieve their overarching goals of protecting investors, deterring misconduct, punishing wrongdoers, compensating harmed investors, and maintaining confidence in the integrity and fairness of the U.S. markets. Their enforcement decision-making will be guided by these five core principles.
1. Focus on the Main Street Investor
The co-directors stressed their commitment to protecting retail investors because they are the most prevalent and vulnerable market participants and least able to withstand financial loss. To this end, the Enforcement Division will pursue accounting fraud, microcap fraud, offering fraud, improper trading strategies, pump and dump schemes, Ponzi schemes, suitability issues, abuses in wrap-fee accounts and sales practice abuses. The targets of such enforcement actions will include individual bad actors, as well as financial institutions (including Wall Street firms) and their intermediaries.
In addition, the Enforcement Division recently created a Retail Strategy Task Force to develop strategies to address harm to retail investors. The task force will use technology and data analytics to identify large-scale wrongdoing. The task force will work closely with the Office of Compliance Inspections and Examinations to identify risk areas and warn retail investors about those risks with assistance from the Office of Investor Education and Advocacy.
2. Focus on Individual Accountability
The Enforcement Division will make a concerted effort to charge individuals – indeed, pursuing individuals currently is—and will continue to be—“the rule, not the exception.” The co-directors expressed the view that doing so more effectively deters wrongdoing by sending strong messages of deterrence, stripping wrong-doers of ill-gotten gains, and barring serious bad actors and recidivists from the securities markets.
While focusing on individuals will consume more resources because individuals are more likely to litigate than institutions, this is a trade-off the co-directors are willing to accept.
3. Keep Pace with Technological Change
The co-directors view cyber-related threats as one of the greatest risks to the securities markets. In response, the Enforcement Division will take steps to stay current with technological developments that impact the securities markets and laws. In addition, a Cyber Unit was created to investigate and prosecute, in coordination with DOJ and other criminal authorities, technologically-driven violations. The Cyber Unit will focus its efforts in the following areas:
- Market manipulation schemes involving false information spread through electronic and social media
- Hacking to obtain material nonpublic information and trading on that information
- Violations involving distributed ledger technology and initial coin offerings (ICOs)
- Misconduct perpetrated using the dark web
- Intrusions into retail brokerage accounts
- Cyber-related threats to trading platforms and other critical market infrastructure
The Cyber Unit includes experts in cyber intrusions, distributed ledger technology, initial coin offerings, and the dark web.
4. Impose Sanctions That Most Effectively Further Enforcement Goals
The co-directors disfavor a “formulaic or statistics-oriented approach” to deciding which remedies in the Commission’s arsenal to impose on respondents. Rather, the Enforcement Division will give careful consideration to the composition of remedies that will be most appropriate in each given situation.
5. Constantly Assess the Allocation of Resources
The co-directors noted that they face important resource decisions given the innumerable issues that arise from our multi-trillion-dollar securities markets. The co-directors will continually assess whether the Enforcement Division’s resources are being allocated to “address the most significant market risks and in the most effective manner, keeping front of mind the violators who pose the most serious threats to investors and market integrity.”