The D.C. Circuit held that while a defendant investment adviser’s failure to disclose conflicts of interests on registration applications was sufficient to support the SEC’s finding of a violation of § 206 of the Investment Advisers Act, which imposes a negligence standard, the evidence was insufficient to support the SEC’s finding of a violation of § 207 of the Act, which imposes a willfulness standard. According to the court, in order to prove willfulness, the SEC must demonstrate that the investment adviser “intentionally commit[ed] the act which constitutes the violation” by showing that “at least one of [the adviser’s] principals subjectively intended to omit material information.”  This holding effectively rejects the SEC’s longstanding interpretation under Wonsover v. SEC that willfulness under the federal securities laws requires only a voluntarily-taken negligent act, which the SEC has used to seek penalties, bars, and certain collateral consequences for negligent acts under securities laws that impose a willfulness standard.  The D.C. Circuit’s decision rejects this interpretation with respect to the Investment Advisers Act and may be interpreted to apply more broadly to any securities laws that require willfulness.  922 F.3d 468, 479 (D.C. Cir. 2019).

D.C. Circuit Opinion