Jan 26 (Reuters) - The Securities and Exchange Commission dismissed a three-year-long case against the former
general counsel of an investment bank whom the agency accused of
failing to supervise a rogue broker.
An order by a divided Commission, late Thursday, ended the
agency's controversial action against Theodore Urban, once
general counsel of the former Ferris Baker Watts LLC, a
Washington, D.C.-based brokerage and investment bank, now part
of RBC Wealth Management.
The case has worried securities industry compliance
professionals, who argued it could redefine the SEC's view of
those it considers a "supervisor" in the securities industry.
They were concerned that a broad view could make them easier
targets for SEC enforcement actions.
Compliance officers often advise brokerages on how to
protect their business from employee misconduct, as Urban did in
his role as general counsel.
Urban's difficulties date back to 2003 when Ferris Baker
Watts hired Stephen Glantz, a top-producing broker who became
involved in a stock manipulation scheme. Glantz later plead
guilty to securities fraud charges and served time in prison,
according to an opinion in 2010 by SEC administrative law judge
Brenda Murray.
Urban, who learned of clues that suggested possible
misconduct by Glantz, approached his compliance department and
the firm's management about his concerns and ultimately
recommended terminating him. An influential board member,
however, "was vehemently opposed," according to the opinion.
Judge Murray found that Urban's actions were reasonable and
dismissed the case. But it also opened the door to compliance
officers and general counsel being labeled as "supervisors."
The SEC enforcement division appealled Judge Murray's ruling
in late 2010. On Thursday, two SEC commissioners dismissed that
appeal.
"We're pleased the matter has been dismissed. Mr. Urban has
been vindicated," said John Sturc, a lawyer for Gibson Dunn &
Crutcher in Washington, D.C. who represented Urban.
But the dismissal was likely a function of procedure, rather
than a validation of arguments made in the case. SEC Chairman
Mary Schapiro recused herself from the proceeding, along with
Commissioners Elisse Walter and Daniel Gallagher.
The two remaining commissioners, Luis Aguilar and Troy
Paredes were "evenly divided" on whether the agency sufficiently
proved the allegations. A tie typically requires a dismissal,
say lawyers.
(Reporting by Suzanne Barlyn)
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