SEC Division of Enforcement ("Division") Co-Directors Stephanie Avakian and Steven Peikin highlighted current and future enforcement priorities.

In written testimony submitted to the U.S. House Subcommittee on Capital Markets, Securities and Investment, Ms. Avakian and Mr. Peikin confirmed the Division's focus on protecting main street investors, and explained that the Division established the Retail Strategy Task Force in order to deter misconduct and punish actions that harm retail investors. They said that the Division is focused on individual accountability, but also noted that an emphasis on retail investors will not divert from efforts to hold large institutions and other market participants accountable for harmful conduct.

The Co-Directors also highlighted the Cyber Unit, which was formed in order to keep enforcement efforts current in light of significant technological developments. They identified several cyber-related areas of focus, including:

  • pursuing actions against fraudulent initial coin offerings ("ICOs") and crypto-related misconduct;
  • holding ICOs responsible for failing to satisfy registration requirements; and
  • working to prioritize cybersecurity policies and procedures for public companies, including in relation to cybersecurity risk and breach-related disclosures.

Ms. Avakian and Mr. Peikin further expressed a commitment to imposing reasonable, effective sanctions on a case-by-case basis, as well as working to maximize the recovery and return of funds lost by harmed investors. The Co-Directors warned that the recent Supreme Court decision in Kokesh v. SEC may hinder the ability of investors to recover losses incurred as a result of fraud. In Kokesh, the Court held that SEC disgorgement claims are subject to the five-year statute of limitations generally applicable to SEC enforcement actions.

Subcommittee Chair Bill Huizenga (R-MI) stated that the "true effectiveness of a regulatory agency or its enforcement program" should not be evaluated "solely based on how many headlines it can generate." Echoing SEC Commissioner Hester Peirce's previous remarks, Mr. Huizenga criticized the "broken-windows" approach to enforcement, arguing that it generates inflated statistics but fails to adequately establish investor protections.

Commentary / KyleDeYoung

In testimony that largely tracked the "core principles" they set out in the Enforcement Division's Annual Report for Fiscal Year 2017, the Co-Directors' focus on the Supreme Court's decision in Kokesh stands out. In oral testimony at the hearing, Co-Director Peikin stressed Kokesh's impact on the SEC's ability to recover money for investors and said that the decision already had forced the SEC to forgo more than $800 million in ill-gotten gains in the last year. While the Co-Directors declined to offer a specific solution, it was apparent that they hope Congress will provide a legislative fix. It will be interesting to see whether Congress, which seems to be looking for more strategic discretion from SEC enforcement, will act to expand the SEC's reach on this issue.

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