SEC Co-Director of Enforcement Stephanie Avakian provided additional details on two newly rolled out enforcement initiatives – the Retail Strategy Task Force (the "Task Force") and the specialized Cyber Unit (see previous coverage).
Ms. Avakian confirmed that the Task Force, which was formed in September 2017, will focus on examining the role of retail investors in securities markets and identifying misconduct that injures them, such as improper recommendations and the collection of avoidable fees by investment professionals. It will utilize data analytics and technology to recognize and pursue such misconduct and will work with other SEC divisions and groups to analyze trade and other data and identify tips and complaints reported by investors. The Task Force will also dedicate substantial resources to investor outreach and education. According to Ms. Avakian, the Task Force is currently being staffed up and is expected to begin operating in the near future.
Ms. Avakian also discussed the recent creation of the Cyber Unit, which she said was necessitated by the increased frequency and complexity of cyber-related misconduct in securities markets. In particular, she suggested that easy access to the dark web and the growing presence and utilization of digital currency have contributed to the uptick in cyber violations. Ms. Avakian pointed to several cyber-related practices used to manipulate markets, including hacking in order to access and trade on nonpublic information, account intrusions to trade using hacked brokerage accounts, and disseminating false information through electronic publications. In addition, Ms. Avakian explained that another area of interest relates to the failure of entities to appropriately safeguard confidential information. She said that the Cyber Unit will consolidate SEC cyber-resources in a single unit to devote adequate attention and expertise to cyber-related misconduct. This focus will also include initial coin offerings and other applications of digital currency and blockchain technology.
Commentary / Joseph V. Moreno
The establishment of the Retail Strategy Task Force is unlikely to signal a significant change in enforcement priorities under Chair Clayton and the new leadership of the Enforcement Division. The Task Force will not itself bring enforcement actions, but instead will refer them to the Enforcement Division. Co-Director Avakian pointed out that the creation of the Task Force does not indicate a shifting of priorities away from others types of financial fraud – "[t]he premise that there is a trade-off between 'Wall Street' and 'Main Street' enforcement is a false one," she said.
The creation of the new Cyber Unit is likely to be a more significant development. It was announced in September 2017 on the heels of the revelation that the SEC's EDGAR system was breached in 2016. It is clear that cybersecurity will be a high priority for the SEC going forward. It also appears that the Cyber Unit will take the lead on scrutinizing initial coin offerings ("ICOs") and tokenized securities going forward – following up on the SEC's first fraud actions against ICOs brought last month (see previous coverage). Unlike the SEC's first specialized cyber unit, which was shuttered as part of an agency-wide reorganization in 2010, the new Cyber Unit seems likely to be well-resourced, well-staffed, and take point on high-technology threats to the capital markets and the investing public.
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