The Robare Decision: Court Says Negligent Conduct Is Not Willful Conduct (Part One of Two)

The SEC has historically treated intentional conduct and negligent conduct as essentially the same. In cases involving material omissions, the SEC has typically considered a negligent omission coupled with intentional conduct, such as the filing of a Form ADV, to satisfy the “willfulness” requirement for charges under Section 207 of the Investment Advisers Act of 1940 (Advisers Act). A recent court decision, however, strongly suggests that more may be needed for a Section 207 charge. Specifically, the U.S. Court of Appeals for the D.C. Circuit (Court) ruled in Robare v. SEC that, although an investment adviser and its principals violated Section 206(2) of the Advisers Act by negligently failing to adequately disclose to investors a financial arrangement with a service provider, that same conduct was not enough to sustain a violation of Section 207 for willful inadequate disclosures to the SEC. This two‑part series analyzes the Robare decision. This first article summarizes the Commission’s findings and the Court’s rulings on those findings. The second article will provide a former senior SEC official’s perspectives on the implications of the Robare decision for both investment advisers and for the SEC’s Division of Enforcement. For coverage of other recent enforcement actions involving disclosure failures, see “SEC Sanctions Adviser and Principal for Cherry Picking and Abuse of Soft Dollars” (Jun. 20, 2019); and “SEC Fines Fund Manager for Failing to Equitably Allocate Fees and Expenses to Its Affiliate Funds and Co‑Investors” (Jun. 6, 2019).

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