Editors' Note: This is the first in our start-of-year series examining important trends in white collar law and investigations in the coming year. Up next: a look at trends in health care enforcement. Look for additional posts throughout the month of January.

As we look towards the SEC Division of Enforcement's agenda for 2020, the cases it filed in 2019, the public statements of the Commissioners and Enforcement's senior officials, and the Division's annual report provide useful indicators of what we can expect in the coming year. As it has done since Jay Clayton was sworn in as SEC Chairman in 2017, in 2019 Enforcement reaffirmed its five "core principles": (1) focus on the retail investor; (2) focus on individual accountability; (3) keeping pace with technological change; (4) pursuit of remedies that most effectively further its enforcement goals; and (5) constant assessment of the allocation of the Division's resources. The types and volume of enforcement actions that the agency brought in 2019 were consistent with these goals, and along with other signals, indicate that SEC Enforcement will maintain these priorities for the foreseeable future. Accordingly, we anticipate the following for 2020:

Enforcement Likely to Remain Active. In fiscal 2019, the SEC filed 526 "standalone" cases (actions brought in federal court or as administrative proceedings, as distinguished from "follow-on" proceedings seeking industry bars based on the outcome of actions brought by the SEC, criminal authorities or other regulators), up from 490 such actions in fiscal 2018, an increase of 7 percent. The uptick is due in part to the expedited settlement process of the Share Class Disclosure Initiative (SCDI), which encouraged investment advisers to self-report failures to disclose conflicts of interest in connection with 12b-1 fees charged to clients for the advisers' selection of mutual fund share classes over less expensive classes without 12b-1 fees. It is nevertheless significant that Enforcement reached these numbers despite the 35-day federal government shutdown in December 2018 and January 2019, which brought the SEC to a near-standstill, and reduced staffing levels that, due to attrition and a hiring freeze in place until April of this year, are 9 percent below the level of fiscal 2016. We can infer from the recent pace of enforcement actions and the gradually increasing number of personnel that the Division will aim to reach comparable figures in 2020.

Investment Advisors Will Remain a Primary Focus. In terms of substance, we also expect the Chairman's emphasis on retail or "Main Street" investors to remain front and center, especially with respect to investment advisers. Enforcement in 2019 aggressively targeted misconduct by investment advisers toward retail investors (though several of its filed actions have involved alleged harm to institutional investors by private funds as well). Accordingly, as in 2018, standalone cases involving investment advisory and investment company issues were by far the largest category of enforcement actions, making up 36 percent of the total. These cases tended to involve failure to disclose conflicts of interest, expenses, allocation of fees and/or valuation of assets, and Enforcement has signaled that it is poised to continue targeting this conduct. For example, in a November 2019 speech, Enforcement Co-Director Stephanie Avakian stated that the Division is focused on disclosures of conflicts arising from revenue-sharing arrangements in cash sweep programs between dually-registered investment advisers/broker-dealers and clearing firms, as well disclosures concerning fee structures in investments in unit investment trusts by advisory clients.

Public Companies Will Continue to Attract Scrutiny. Issuers have also remained in the crosshairs, with securities offerings (21 percent) and issuer reporting/audit and accounting (17 percent) constituting the second and third most frequent types of enforcement action. Again, we expect, based upon the patterns of previous years and Enforcement's public statements, that the SEC's close focus on these areas will continue.

Digital Assets and Cybersecurity Will Remain a Centerpiece of the Enforcement Agenda. Through the work of its Cyber Unit, Enforcement has prioritized cases involving the sale of digital assets in so-called initial coin offerings (ICOs) and the security of data against cyber threats. Having previously determined that digital tokens can qualify as securities, and thus fall within the SEC's power to regulate, the agency brought charges against several issuers engaging in ICOs who made misleading statements or omissions in connection with the ICOs and/or failed to register the offerings in violation of Section 5 of the Securities Act. Although pursuit of such issuers remains at the top of Enforcement's agenda, one issuer, Kik Interactive, is disputing that its digital tokens constitute securities in litigation pending in the U.S. District Court for the Southern District of New York. An adverse decision could curtail the SEC's authority over these offerings.

As to data security, Enforcement issued a Report under Section 21(a) of the Securities Exchange Act at the start of fiscal 2019 warning public companies to take into account cyber threats when designing their internal accounting controls. 21(a) Reports are often a precursor to enforcement action, so 2020 may bring an increase in actions against issuers for deficient internal controls in connection with cyber breaches. In addition, the SEC's Office of Compliance Inspections and Examinations (OCIE) last year issued a Risk Alert flagging deficiencies in compliance with Regulation S-P, which, among other things, requires regulated entities, including registered investment advisers and broker-dealers, to adopt policies and procedures designed to safeguard customer data. OCIE Risk Alerts are likewise often a harbinger of Enforcement activity, so we may see an increase in Reg S-P cases over the coming year.

The SEC Will Continue to Target Individuals. We also anticipate that the SEC will continue to pursue charges against individuals, a goal that Enforcement has publicly and repeatedly articulated. Sxity-nine percent of the SEC's standalone cases in fiscal 2019 (other than cases that were part of the SCDI) involved charges against one or more individuals, including C-level executives, on the rationale that "individual accountability drives behavior and can also broadly impact corporate culture." This figure is in keeping with previous years, and the frequency of cases against individuals will likely remain broadly consistent.

Clouds Will Remain Over the SEC's Disgorgement Power. Less certain, however, is the SEC's continued ability to recover disgorgement of ill-gotten gains, currently its most significant form of monetary relief. (In fiscal 2019, the SEC obtained $1.101 billion in penalties and $3.248 billion in disgorgement.) Enforcement continues to feel the effects of the Supreme Court's 2017 decision in Kokesh v. SEC, which held that disgorgement is a penalty and thus subject to a five-year statute of limitations – causing the SEC, by Enforcement's most recent estimate, to forego approximately $1.1 billion in disgorgement in filed cases. In November 2019, the U.S. Supreme Court granted certiorari in Liu v. SEC, a case from the Ninth Circuit in which the petitioners argue that the SEC lacks authority to obtain disgorgement at all. If successful, absent a quick legislative fix, this challenge would deprive Enforcement of what has been a core component of its Enforcement arsenal for nearly fifty years.

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