Highlights of SEC Speaks 2016 for Whistleblowers

At the end of last week, the Practicing Law Institute held its annual SEC Speaks conference with employees of the Securities And Exchange Commission. The program typically offers a wide range of insight into the securities regulator’s priorities for the coming year. Here are three of the discussions that hit our rader for whistleblowers:

Hacking

Stephanie Avakian, deputy director of enforcement, discussed cybersecurity issues at both financial firms and the disclosure of hacking incidents by publicly traded companies. With regard to the letter, Avakian reportedly said that there had not been an enforcement action against a company yet for failure to disclose such an incident but that it might be warranted in a future case of a “significant disclosure failure.” The enforcement actions so far have been related to (1) the use of hacking to obtain non-public information for market advantage and (2) financial firms failing to meet their duty to protect client data.

Hard-to-Sell Assets

The SEC has been examining high yield credit funds following the failure of the Third Avenue Focused Credit Fund. Regulators are worried that the bond funds, bank loan funds and exchange-traded funds may become illiquid if investors seek redemptions and the financial institutions are unable to liquidate their asset holdings. ETFs also are on the mind at the SEC due to their role in the tremendous late August market drop.

Dark Pools

SEC Chair Mary Jo White said that alternative trading systems remain a focuse of the SEC and specifically predicted that we will see more dark pool cases. The SEC has issued progressively increasing fines over the past two years to resolve investigations into operator wrongdoing by the trading platforms known as dark pools. The SEC has already reached settlements with Barclays, Credit Suisse, UBS and Investment Technology Group. There are currently more than 40 active dark pools.

We expect there will be SEC whistleblowers in all three areas over the next few years.

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