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Regulation and Compliance > Federal Regulation > SEC

Email Privacy Act Could Stifle SEC Investigations: Enforcement Chief

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Failure to update the Email Privacy Act would impede the Securities and Exchange Commission’s ability to catch fraud against elderly investors as well as Ponzi schemes, the agency’s director of enforcement told Congress on Tuesday.

In testimony before the House Judiciary Committee, Andrew Ceresney, head of the SEC’s Division of Enforcement, urged lawmakers to update the Email Privacy Act, H.R. 699 — which seeks to modernize portions of the Electronic Communications Privacy Act, passed in 1986 — because the bill prevents the SEC and other civil law enforcement agencies from obtaining electronic information from Internet service providers.

H.R. 699 would require a criminal warrant to seek the content of emails and other electronic communications from Internet service providers. As a civil agency, the SEC does not have the authority to issue a criminal warrant.

Ceresney noted that emails, texts and chat room messages often provide “critical evidence” to the commission when investigating wrongdoing.

“Establishing fraudulent intent is one of the most challenging issues in our investigations, and emails and other electronic messages are often the only direct evidence of that state of mind,” Ceresney said.

When the SEC conducts an investigation, “we generally will seek emails and other electronic communications from the key actors via an administrative subpoena – a statutorily authorized mechanism for gathering documents and other evidence in our investigations.”

Not all of the SEC’s requests for emails are granted, Cerensey noted, and sometimes subpoenaed recipients erase emails, tender only some emails, assert damaged hardware, or refuse to hand them over. In still other instances, he continued, email account holders cannot be subpoenaed because they are beyond the agency’s jurisdiction.

That’s why the SEC needs to continue to have the authority to use an administrative subpoena to get information from internet service providers, Ceresney asserted, but H.R. 699 would require government entities to procure a criminal warrant when they seek the content of emails and other electronic communications from ISPs — something the SEC, as a civil agency, is not allowed to do.

ISPs can store emails after a person deletes them anywhere from 60 to 180 days.

H.R. 699 not only requires a criminal warrant for email and electronic communications but it also eliminates the different requirements applicable under current law depending on whether such communications were: stored for fewer than, or more than, 180 days by an electronic communication service; or held by an electronic communication service as opposed to a remote computing service.

Rep. Kevin Yoder, R-Kansas, who sponsored H.R. 699, has argued that Congress needs to “modernize” the outdated statutes from the 1986 law ”to ensure that the rights protected by the Fourth Amendment extend to Americans’ email correspondence and digital storage.” If the bill becomes law without modifications, Ceresney told the lawmakers, the SEC would be denied the ability to obtain “critical evidence, including potentially inculpatory electronic communications from ISPs, even in instances where a subscriber deleted his emails, related hardware was lost or damaged, or the subscriber fled to another jurisdiction.”

Preventing the SEC from obtaining email content from an ISP would also “incentivize subpoena recipients to be less forthcoming in responding to investigatory requests because an individual who knows that the SEC lacks the authority to obtain his emails may thus feel free to destroy or not produce them,” Ceresney argued.

Allowing civil law enforcement to obtain electronic communications from ISPs in limited circumstances would not “mean electronic documents enjoy less protection than paper documents,” Ceresney said. As currently drafted, “H.R. 699 would create an unprecedented digital shelter – unavailable for paper materials – that would enable wrongdoers to conceal an entire category of evidence from the SEC and civil law enforcement.”

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