SEC Enforcement Division Releases Annual Report and Stress Priorities

On November 15, 2017, Stephanie Avakian and Steven Peikin, the Co-Directors of the Securities and Exchange Commission’s Division of Enforcement, published the Division’s Annual Report for fiscal year 2017.  Avakian and Peikin emphasized the Division’s commitment to enforcing the federal securities laws in order to “combat wrongdoing, compensate harmed investors, and maintain confidence in the integrity and fairness of our markets.”  They also emphasized their goals of shielding investors, discouraging misconduct, and reprimanding and penalizing those who violate the federal securities laws.  To accomplish these goals, five core principles, according to Avakian and Peikin, will serve as the Division’s road map.

First, the Division will focus primarily on retail investors, who Avakian and Peikin believe are not only the most common market participants, but also are the most susceptible and least equipped to handle financial loss.  The Division plans to keep confronting violations of the securities laws that can have a strong impact on retail investors, such as accounting fraud, sales of unsuitable products, Ponzi schemes, and pump and dump schemes.  The Division has also established a Retail Strategy Task Force to formulate competent methods of confronting securities law violations that affect retail investors.  The Retail Strategy Task Force will work with the SEC’s examination staff and the Office of Investor Education and Advocacy to pinpoint risk areas common to retail investors.

The Division will also place a strong focus on individual accountability.  According to the Division, individual accountability is more successful at discouraging violations of the securities laws.  Through individual accountability, “bad actors” can be compelled to give up any “ill-gotten gains,” and, can be suspended or barred from the securities markets.  Avakian and Peikin acknowledged that this strategy could place more of a strain on the Division’s resources because individuals are more likely to turn to litigation than institutions.

Avakian and Peikin also plan for the Division to focus on keeping pace with technological change.  As technology has developed, it has enabled certain bad actors to participate in cyber-related misconduct.  In response, the Division founded a Cyber Unit earlier this year to address cyber-related violations of the securities laws.  The Cyber Unit features experts in cyber intrusions, distributed ledger technology, and the dark web.  The Cyber Unit’s members also work with the Department of Justice and other criminal authorities to “investigate and prosecute these increasing technology-driven violations.”

Avakian and Peikin also intend for the Division to focus on recommending sanctions that successfully help enforcement goals and they intend to evaluate the types of remedies that will be the most suitable in each relevant case, rather than taking a “formulaic or statistics-oriented approach.”

Avakian and Peikin also plan for the Division to continually examine the allocation of its resources.  While the Division is the SEC’s largest Division, it has fewer than 1,200 professionals.  Because of that, the Division must continually examine whether its resources are being allocated to confront the most noteworthy market risks in the most competent manner.  The Division must focus primarily on the bad actors who present the greatest threats to investors and the market.

---