On April 30, 2019, the D.C. Circuit issued an important decision in Robare Group, Ltd. v. SEC, Slip Op. No. 16-1453, which rejected the long-standing approach of the Securities and Exchange Commission (“Commission” or “SEC”) that a “willful” violation of the federal securities laws can rest on conduct that is merely negligent. Specifically, the D.C. Circuit held that the Commission could not bring an action alleging “willful” conduct under Section 207 of the Investment Advisers Act of 1940 (“Advisers Act”) based on conduct reflecting only negligence under Section 206(2) of the Advisers Act. Id. at 18.

This decision rejects the Commission’s historical enforcement approach, and its potential impact extends beyond just the Advisers Act. The Commission has long argued that the standard for “willfulness” under the federal securities laws is low, requiring only that the SEC prove that the defendant “knows what he is doing.” See, e.g., In the Matter of Aria Partners GP, LLC, Investment Advisers Act Release No. 4991 (Aug. 22, 2018) (quoting Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000)). The Commission routinely relies on that low “willfulness” standard where the underlying conduct charged is only a negligent violation of the law.

Robare potentially upends this model going forward (at least in the D.C. Circuit). The Court holds that “[a]ny given act may be intentional or it may be negligent, but it cannot be both.” Robare at 18 (citations omitted). The decision thus suggests that a finding of some intent beyond simple negligence may be required for the Commission to support a violation, or a remedy, that requires “willfulness.” That new paradigm has consequences for both the Commission and for practitioners. Though the Court’s decision may make it harder for the SEC to predicate charges or impose remedies requiring “willful” conduct, the decision could also complicate reaching amicable settlements, particularly where the Commission insists on charges, sanctions, or remedies that contain a “willfulness” component.


In September 2014, the SEC instituted administrative cease-and-desist proceedings against The Robare Group, a registered investment adviser, and its two principal-owners (collectively with the adviser, “TRG”) for violations of Sections 206(1) and (2)1 and 2072 of the Advisers Act in connection with their failure to disclose to clients and the SEC on Form ADV or otherwise certain conflicts of interest created by a revenue sharing agreement with a broker-dealer that provided execution, custody, and clearing services for TRG’s advisory clients. Under the revenue sharing agreement, the broker-dealer would pay TRG when TRG’s clients invested in certain of the funds offered on one of the broker-dealer’s online platforms.

The Commission found that the respondents failed to disclose adequately the material conflicts of interest created by the revenue sharing agreement to their clients but had acted only negligently – not with scienter. Robare at 5. The Commission thus found that respondents violated Section 206(2)3, but not Section 206(1), which requires proof of intent. The Commission further found that TRG and its principals violated Section 207 – which makes it unlawful “willfully to make any untrue statement of a material fact” in a Form ADV, or “willfully to omit to state [in a Form ADV] … any material fact which is required to be stated therein.” The Commission reasoned that respondents’ violation was “willful,” because the Form ADV, which TRG’s principals had reviewed and for which they were responsible, failed to disclose the conflicts of interest created by the revenue sharing agreement.

The Commission issued a cease-and-desist order and imposed $50,000 civil monetary penalties on TRG and on each of its two principals.


TRG and its principals appealed the Commission’s findings to the D.C. Circuit. The Court affirmed the Commission’s findings under Section 206(2)4 but reversed the Commission’s decision under Section 207, vacating the order imposing sanctions and remanding the case to the Commission to determine the appropriate sanction for the Section 206(2) violations.

In reversing the Commission’s decision, the Court assumed, without deciding, that the willfulness standard set forth in Wonsover applied, namely that willfully means “intentionally committing the act which constitutes the violation” and does not require the actor to be aware that he or she is violating a Rule or Act. Robare at 16-17. Because the case involved the omission of material conflicts disclosures, the Court emphasized that it was the omission of material facts that had to be willful, not the related acts of approving the language that was presented in the Forms ADV or the fact of filing the forms. Thus, the D.C. Circuit held that the Commission had to find that the parties “subjectively intended to omit material information.” Id at 17.

Because the Commission had found for purposes of Section 206 that TRG had acted only negligently, the Court concluded those same facts could not then sustain a Section 207 violation, which requires intent. “‘Intent and negligence are regarded as mutually exclusive grounds for liability.’” Robare at 17 (quoting Harris v. U.S. Dep’t of Veterans Affairs, 776 F.3d 907, 916 (D.C. Cir. 2015)). “‘Any given act may be intentional or it may be negligent, but it cannot be both.” Robare at 18 (quoting Harris, 776 F.3d at 916). While the Court left open the possibility that “extreme recklessness” could satisfy the intent requirement, the Commission’s decision had specifically found that TRG had not acted recklessly, only negligently. Id. at 18.


The Court’s decision in Robare may make it more difficult for the SEC to establish “willful” violations of the securities laws, where the SEC cannot prove that the underlying conduct was intentional or reckless. This clearly has potential application beyond Section 207 of the Advisers Act. The SEC regularly seeks remedies (such as industry bars and suspensions) that require a finding of willfulness – such as under Section 203(e) of the Advisers Act, Section 9 of the Investment Company Act, and Sections 4C and 15(b) of the Exchange Act. To the extent the Commission tries to predicate those remedies on violations that do not require a finding of intent or recklessness, such as Section 206(2) of the Advisers Act or Sections 17(a)(2) and (a)(3) of the Securities Act of 1933, the same tension between intentional and negligent conduct that the Court took issue with in Robare will be presented. The Commission may need to forego remedies that it routinely imposes at present in cases where the record will not support an intent-based charge.

It remains to be seen whether the Commission’s enforcement authority is restricted in any measurable way by the decision because it is unclear whether allegations about intent and recklessness may also have been available in actions in which the Commission elected to proceed with an action based on the lower “knows what he or she is doing” standard. The Robare decision is likely a mixed blessing for parties subject to an enforcement action. To the extent the Commission is insistent on a remedy that requires a finding of willfulness, practitioners may find the SEC staff more reluctant to settle only to negligence-based charges.

And on the industry side, the Robare decision has implications for how advisers can explain Section 207 charges to their clients.5 Because the Court held that a Section 207 violation based on a failure to disclose material information requires a person to willfully omit material information from the Form ADV (i.e., to recognize the information was material and nevertheless to choose to exclude it), advisers settling to Section 207 charges will be more limited in how they can explain their settlements to clients. In particular, advisers settling to Section 207 violations may no longer be able to present their settlements to clients as reflecting inadvertent, negligent omissions, which may make managing client reaction to settlements more difficult.

Last, the decision suggests that, at least in the D.C. Circuit, the Wonsover standard for “willfulness” may be under threat. Wonsover involved the standard of willfulness under Section 15(b)(4) of the Exchange Act. The Court in Robare assumed that the Wonsover standard applied to Section 207 – but it did that only because both parties agreed that it was the correct standard. The D.C. Circuit has never addressed the proper standard under Section 207, and the Robare Court made clear it was not deciding that in this case. Given the Court’s palpable hostility to the Commission’s application of Wonsover, it is fair to wonder – if presented the issue in the context of other willfulness provisions of the securities laws, or anew with Section 207 – whether that hostility will translate into the articulation of a more demanding standard.