SEC Speaks – What To Expect In 2016

The leaders of the Securities and Exchange Commission ("SEC" or "Commission") addressed the public on February 19-20 at the annual SEC Speaks conference in Washington, D.C. The presentations covered an array of topics, but common themes included the Commission's ongoing effort to carry out the rulemaking agenda set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, its increasing focus on cyber issues including its use of new technology to surveil and root out harmful practices in the modern and increasingly-complex market, and its continued focus on the conduct of gatekeepers. From a litigation and enforcement perspective, key takeaways from the conference include the following:

SEC Chair Mary Jo White began her remarks by touting the "unprecedented number of enforcement cases" brought by the Commission in 2015, which produced "an all-time high for orders directing the payment of penalties and disgorgement"—a trend that she stressed would continue in 2016. Addressing the agenda for 2016, Chair White explained that the Commission will focus on issues relating to cybersecurity, market structure requirements, dark pools and other alternative trading systems, insider trading, disclosure deficiencies, and sales and marketing practices with respect to complex instruments and retail investors. Chair White said that, among other things, the Commission will "actively continue" its review of disclosure effectiveness, continue to bring enforcement actions relating to missing or inadequate internal corporate controls, and continue to focus on financial reporting. Chair White noted that she will continue lobbying her fellow Commissioners for support for "a uniform fiduciary duty for investment advisers and broker-dealers," underscoring her commitment to the Commission's renewed focus on gatekeepers, which was a major theme of this year's conference. Chair White concluded her remarks by noting that "risk-taking is essential" to the process by which "capital markets fuel not only macroeconomic growth, but also critical innovations," and that while "regulators should not seek to eliminate [risk taking] altogether," they must "safeguard the investment and capital raising process from unacceptable risks that can dilute, distort, or disable the fair playing field that is integral to robust free financial markets."

Deputy Director of Enforcement, Stephanie Avakian, noted that insider trading cases "continue[] to be a priority" for the Commission in 2016. She discussed the Second Circuit's decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014)—in which the court held that prosecutors in tipper/tippee insider trading cases must show that the tipper received a "personal benefit" of a pecuniary or quid pro quo nature in exchange for the tip—and the circuit split that was recently created by the Ninth Circuit's decision in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), in which the court held a tipper's gift of confidential information to a trading relative, even though not for pecuniary gain, was sufficient to establish a "personal benefit." Avakian described it as "important" that the Supreme Court has granted certiorari review of Salman in light of this circuit split, and the Commission is likely to file an amicus brief presenting its views. She also surveyed the landscape of district court decisions post-Newman, including the United States District Court's decision in SEC v. Payton, 97 F. Supp. 2d 558 (S.D.N.Y. 2015), in which the court held that the SEC's lighter civil burden for insider trading cases was satisfied in tippee cases by a showing of recklessness. Avakian also discussed the Commission's 2016 enforcement interests in issues related to cybersecurity. She noted that the Commission's focus falls in three areas: (1) cases where there has been a failure to safeguard customers' information (citing the Commission's administrative proceeding against R.T. Jones Capital Equities Management, Admin. Proc. No. 3-16827, in which R.T. Jones agreed to a cease and desist order as well as censure and a $75,000 penalty arising from the Commission's charges that the firm violated Regulation S-P by "entirely" failing to have...