Supervisory obligations of broker‐dealer legal and compliance personnel after the Urban case

Abstract

Purpose

The purpose of this paper is to analyze a recent US Securities and Exchange Commission order dismissing an administrative proceeding against the former general counsel of a broker‐dealer relating to his purported failure to supervise a registered representative.

Design/methodology/approach

The paper explains the story of the general counsel of a broker‐dealer who recommended that a registered representative be fired for misconduct, the effective over‐ruling of that recommendation by the vice chairman of the firm who supervised the registered representative, the SEC's order instituting administrative proceedings (OIP) alleging that the general counsel was the registered representative's supervisor and failed in his supervisory responsibilities, an administrative law judge's finding that the general counsel was the registered representative's supervisor but was not negligent under the circumstances, the SEC Division of Enforcement's appeal of that decision, and the SEC Commissioners’ dismissal of the appeal after a split 1‐1 vote.

Findings

The paper finds that the SEC's “non‐decision” decision leaves compliance and legal personnel with no clear guidance as to when they may have supervisory responsibilities with respect to broker‐dealer personnel and the SEC has not explained whether compliance personnel have different and/or additional compliance responsibilities as compared to legal personnel.

Practical implications

The SEC and its Division of Enforcement are likely to pursue and penalize compliance and legal officers notwithstanding their efforts to alert senior management to wrongdoing by employees they do not actually supervise.

Originality/value

The paper provides expert guidance by experienced securities lawyers.

Citation

Blanc, R.D., Kramer, H.L., Miller, M.R. and Comstock, M.B. (2012), "Supervisory obligations of broker‐dealer legal and compliance personnel after the Urban case", Journal of Investment Compliance, Vol. 13 No. 2, pp. 40-43. https://doi.org/10.1108/15285811211238138