Advisers should be extra careful in 2018, since the Securities and Exchange Commission's new leadership plans on taking a closer look next year at individual practitioners who serve retail investors, according to some legal and compliance experts who viewed the agency's fiscal year 2017 enforcement results and priorities.
Todd Cipperman, a managing principal at Cipperman Compliance Services, noted that more than 80% of the
actions cited in the report were against individuals. Pursuing individuals can be more expensive, but Jay Clayton, who was appointed chairman of the SEC by President Donald J. Trump in January, has said it more effectively deters wrongdoing.
The report, released last Wednesday, said the SEC pursued 82 standalone cases against investment advisers and firms, down from 98 the previous fiscal year.
"Just because you're paranoid doesn't mean they aren't after you," Mr. Cipperman said, referring to Joseph Heller's 1961 novel Catch-22. "The data and the explanation imply that the SEC will prioritize prosecuting individuals, even if the money orders are smaller than in institutional actions, because of the fear and the deterrent effect."
REPUTATIONAL IMPACT
Amy Lynch, founder and president of FrontLine Compliance, agrees that pursuing individuals will make the SEC more effective than previous administrations, which Ms. Lynch said were less willing to publicly state individuals charged.
"When someone is impacted directly, at the personal level, that is going to have more of a reputational effect," Ms. Lynch said. "Post-financial crisis and with the current administration, there's been a shift. It is time to name names."
An SEC spokesman declined a request for comment.
(More: SEC task force targets retail investor fraud at the adviser level.)
Deborah Meshulam, a former assistant chief litigation counsel of the SEC's enforcement division and now a partner at the litigation firm DLA Piper, said the report translates into a renewed focus on investigating key areas that are core to the SEC's enforcement program, like protecting "mom and pop investors" from Ponzi schemes and enforcing "public company financial shenanigans, including market manipulations."
SHIFTING ASSETS
Another priority named in the report was a reassessment of the enforcement division's assets. Ms. Meshulam said there's a plan to trim the agency by 100 lawyers through attrition, but doesn't think it will hurt enforcement capabilities. If anything, it could mean taking resources away from so-called "broken windows," or small cases that don't necessarily serve the goal of protecting the investing public, in favor of larger cases with a more direct impact.
(More: Jay Clayton plans to crack down on retail fraud, promote IPOs.)
"Regardless of size, the SEC's enforcement staff has dedicated staff members who take responsibilities seriously and who will continue to pursue cases that protect investment publics and markets," Ms. Meshulam said.
Ms. Lynch said that in addition to cutting the budget, the SEC will move people to its two new units – the new cybersecurity unit and the Retail Strategy Task Force. She also believes that after the restructuring is settled, the number of enforcement actions will pick back up.
