SEC Administrative Law Judge Holds that a Broker-Dealer’s General Counsel Could Be Held Liable as a Supervisor of a Financial Adviser Over Whom He Had No Actual Supervisory Authority

On September 8, 2010, Securities and Exchange Commission (SEC) Administrative Law Judge (ALJ) Brenda P. Murray held that Theodore W. Urban, as former general counsel of brokerage firm Ferris, Baker Watts, Inc. (FBW), had the requisite degree of responsibility, ability or authority to affect the conduct of a rogue broker at the firm, Thomas Glantz, for purposes of Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act), notwithstanding that Urban lacked any authority normally associated with such supervision.  The ALJ found, however, that as Glantz’s “supervisor,” Urban had acted reasonably in following up on warning signs and in relying on other executives at FBW who actively lied to or kept information from him.  As a result, it dismissed the case brought by the SEC’s Enforcement Division against him.  The ALJ’s conclusion that Urban acted as Glantz’s supervisor for purposes of federal securities laws is important, as it could expose in-house counsel at broker-dealers and potentially at hedge fund managers to such supervisory liability or analogous liability.  We discuss the background of the SEC’s administrative proceeding against Urban and the ALJ’s legal analysis.

To read the full article

Continue reading your article with a HFLR subscription.