A decision this week by the U.S. Court of Appeals for the D.C. Circuit rejected the traditional approach of the Securities and Exchange Commission that “willful” conduct is a low standard that simply means that a respondent knows what he or she is doing. On April 30, in The Robare Group, LTD. v. SEC, No. 16-1453 (D.C. Cir., Apr. 30, 2019), the court held that an adviser’s negligent failure to disclose conflicts under Section 206(2) of the Investment Advisers Act of 1940 (Advisers Act) cannot also support a finding of willfulness under Section 207 of the Advisers Act because “willful” requires an intent to omit the information that constituted the disclosure violation. This result could have a significant effect on the SEC Staff’s ability to allege or prove violations as “willful,” which could affect when the Commission can impose administrative sanctions in an administrative proceeding (e.g., pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act) or Section 203(e) or (f) of the Advisers Act) as well as limit circumstances where SEC registrants may otherwise be subject to collateral consequences for negligent conduct alone.
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