Retail investors, cybersecurity and financial fraud. Those are the three priorities for the SEC’s enforcement division, according to its co-director Stephanie Avakian.
Speaking on a panel at the Practising Law Institute’s 49th Annual Institute on Securities Regulation in New York City on Friday, Avakian pointed to the creation of a new SEC Retail Strategy Task Force designed to root out widespread market misconduct affecting retail investors.
The focus is not new, but “but we’re trying to be more strategic,” said Avakian, noting the expanded use of data analytics in the SEC’s efforts.
The division is looking at the sales and disclosure practices of brokers, investment advisors and other SEC registrants. More specifically it’s watching for inadequately disclosed fees, mutual fund share class issues and sales of products unsuitable for individual investors.
“We expect firms to look broadly at all issues,” including whether the right kinds of products are being sold to investors and whether the salespeople understand this and the risks, said Avakian, who like all panelists at the PLI session was speaking for herself and not the agency.
Avakian said the enforcement division is spending more investigative time on cybersecurity cases. “Account intrusions are on the rise,” said Avakian, adding that hackers are not just threatening individual accounts but using those accounts to manipulate markets more broadly, with false tweets and false EDGAR filings in some cases.
She recalled a Morgan Stanley case from 2016 that the division prosecuted because an employee with access to more than 700,000 accounts transferred them to his personal computer, which was subsequently hacked. The firm had failed to restrict access to confidential information for 10 years, said Avakian.