Two recent announcements from the US Securities and Exchange Commission (SEC) provide insight into how the Commission’s new Cyber Unit will conduct itself. The two statements were delivered four days apart and provide some of the most telling information about the unit’s direction.
While delivering the Securities Enforcement Forum 2017 keynote from the Mayflower Hotel in Washington, DC, newly appointed SEC Division of Enforcement Co-Director Stephanie Avakian stated, “We do think there is more we can do to align our resources with two of our key priorities – specifically retail and cyber.” She continued, “To be sure, we have long focused resources in both of these areas, but we think that some structural change and strategic focus will enable us to better fulfill our investor protection mission.” Avakian had prefaced her statements by saying these views were her own and not necessarily those of the SEC.
Avakian also announced the creation of the Retail Strategy Task Force, which will examine how investors interact with the securities market and what risks they might encounter from bad actors therein. Additionally, the task force will develop ways to educate investors, empowering them to make more informed decisions.
Avakian then turned her focus to the Cyber Unit:
“The need for the Cyber Unit arises in large part from the increasing frequency with which we are seeing cyber-related misconduct affecting the securities markets, and also the increasing complexity of these cases. These cybersecurity threats come from a wide range of sources, including foreign and domestic hackers, traders and others who traffic in stolen market-moving information, prospective market manipulators, state-sponsored actors, and others. The work of these actors in many instances has been facilitated by easy access to the dark web marketplace as well as the use of digital currency, both of which make it harder to track the flow of funds involved in cyber violations.”
According to Avakian, the three areas that the Cyber Unit has the most potential to improve are:
- Hacking to access material, nonpublic information in order to trade in advance of some announcement or event, or to manipulate the market for a particular security or group of securities.
- Account intrusions in order to conduct manipulative trading using hacked brokerage accounts.
- Disseminating false information through electronic publication, such as SEC EDGAR filings and social media in order to manipulate stock prices.
Avakian noted that the Division of Enforcement already has “a substantial amount of expertise” in cyber-related cases, remarking that they have previously been handled by the Market Abuse Unit, among others. However, she believes it would be beneficial to aggregate the work on these cases to a dedicated unit, as cyber enforcement is so technically intensive and the threat “is so serious.”
In addition, Avakian discussed the need to police blockchain activities. “For some of the same reasons, we are also including within the responsibility of the Cyber Unit our focus on the distributed ledger technology space ... The emerging issues presented by blockchain technology warrant a consistent, thoughtful approach – and the best way to do that is to centralize the expertise and the focus in a single unit.”
These statements were reinforced on October 30, when the SEC announced it was bringing charges against Joseph Willner, a Philadelphia-area day trader. Willner is accused of generating at least $700,000 in illicit profits after making unauthorized trades from the brokerage accounts of more than 100 victims, influencing the stock prices of several companies. Key to this case is Willner’s use of bitcoin to transfer the proceeds. Avakian commented on the investigation:
“Account takeovers are an increasingly significant threat to retail investors, and it is exactly the type of fraud our new Cyber Unit is focusing on. We are committing substantial resources to combating cyber-based threats to protect investors and our markets from intruders who manipulate the system for their own illicit gain.”