SEC Commissioner calls for more guidance on in-house counsel’s supervisory roles

Five-year case against former Ferris, Baker Watts GC highlights compliance officers’ confusion

After a five-year-long Securities and Exchange Commission (SEC) probe, Theodore Urban’s name has finally been cleared. 

In 2007, Urban, who was the GC of broker-dealer Ferris, Baker Watts Inc., became suspicious of the trading activity of broker Stephen Glantz. After unsuccessfully urging senior executives to fire Glantz, the SEC launched an investigation. Later that year, Glantz pleaded guilty to one count of stock fraud and one count of making a false statement, and was sentenced to 33 months in prison.

But the SEC wasn’t done examining the matter. For five years, the agency investigated Urban—who had been with Ferris since 1984 and retired in 2007—to determine whether he had failed as a supervisor.

In March 2010, Urban had a hearing before the SEC’s chief administrative law judge, who released her decision six months later, finding that Urban was Glantz’s supervisor and that he supervised appropriately. But the SEC’s Enforcement Division petitioned the commission for a review of the decision.

On Jan. 26, the full SEC dismissed the case against Urban without an opinion and without clarifying when a compliance officer or in-house lawyer qualifies as a supervisor who could be liable for an employee’s actions. Compliance officers were disappointed with the outcome, as was SEC Commissioner Daniel Gallagher, who had recused himself from the case. Gallagher said the “disturbingly murky” guidance on who qualifies as a supervisor presents a “dangerous dilemma”: Compliance officers and in-house attorneys may hesitate to report wrongdoing to the SEC.

“Robust engagement on the part of legal and compliance personnel raises the specter that such personnel could be deemed to be ‘supervisors’ subject to liability for violations of law by the employees they are held to be supervising,” Gallagher said in a speech on Feb. 24. He also told Bloomberg that the SEC should offer guidance so that compliance officers “won’t be afraid to be zealous because they’ll be tagged as a supervisor.”

Gallagher and the compliance community are pushing the SEC to provide clearer guidance on the matter.

Read Reuters for more information.

Ashley Post

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