COMPLY-Inconclusive result of supervisor case worries ex-counsel
WASHINGTON Oct 25 (Reuters) - For more than five years, Theodore Urban battled to save his reputation in a case that could have ended with a new set of responsibilities for all compliance officers - but did not.
Ten months ago, the U.S. Securities and Exchange Commission finally dismissed the controversial civil enforcement case against Urban, who had been accused of not supervising a broker whose misdeeds he brought to light while general counsel of Ferris Baker Watts LLC.
Urban, 62, is relieved that the ordeal is behind him, but said others might find themselves in a similar position because the SEC left a key legal question unanswered: Can compliance professionals and legal staff who make recommendations about employee conduct be deemed supervisors?
The possibility that they could - and then be targeted in regulatory actions - may deter many people from taking such jobs because of the risks involved, compliance professionals say. For now, they say, people continue to sign on for the role, but they are increasingly worried about potential liability and greater scrutiny by regulators.
Urban's case has intensified those fears. The SEC's enforcement unit appealed a decision by an administrative law judge that Urban was a supervisor who adequately did his job. Urban also appealed to the agency's commissioners, adding another wrinkle by arguing that he was not a supervisor at all. But when three commissioners recused themselves for unknown reasons, the case was dismissed.
Urban's woes began when he made suggestions to his firm about how to deal with a rogue broker - including firing him - and then found himself the subject of an SEC enforcement action for not supervising that broker, even though he had no day-to-day responsibility for the employee. The case, he said, was an "albatross" that cost "well into the seven figures" to defend and led to an earlier-than-expected retirement.
Now his former Washington-based brokerage and investment bank is part of RBC Wealth Management, and Urban is getting on with his life.
He spoke with Reuters about his concerns during this week's annual meeting of the National Society of Compliance Professionals in Washington. Edited excerpts of the interview follow:
Q: You have expressed frustration about your case going on for so long and ending without clarity about whether compliance officers should be deemed supervisors. Can you explain?
A: There were two questions addressed by the administrative law judge: Was I a supervisor and, if so, did I reasonably perform my duties? The judge ruled that I was a supervisor, but to the extent I was, I performed my duties responsibly.
One question unanswered because of the SEC's dismissal is of much more concern to the compliance and legal community: Why was someone who had no specific supervisory duties ever deemed to be a supervisor in the first place?
Q: Do you think about what would have happened if the commission ruled and the outcome was against you?
A: First of all, I'm delighted it's over. This thing had dragged on long enough. I'm not saying "Gee, I wish it could have gone on longer so we could have gotten a complete resolution."
Part of the problem is these cases don't come along very frequently - and yet they impact the daily life of every compliance and legal person in the industry. This would have been a good opportunity for the commission to have declared in a much clearer way what the standard ought to be for the compliance community.
Q: What advice would you give people who are looking into compliance officer or general counsel positions?
A: I had an indemnity agreement as an officer and director of Ferris (which would reimburse Urban for financial liabilities related to his role). Ferris honored that indemnity, including advancing my legal fees.
If you're in a firm where you don't have indemnity, or don't have insurance (directors and officers liability coverage) as an alternative, it's going to be very difficult to mount the defense that needs to be mounted in a case like this.
At minimum, be sure the firm can indemnify you for the cost of a defense. There are many firms that might not have the resources. Then, when things blow up, the firm itself may be charged, and it can go out of business. If your firm goes out of business, indemnity will not do you much good. That's when insurance would come into play.
Q: Do you see any chance for resolution on this? How long will compliance and legal officers face this type of risk?
A: I was at a point in my life and career when this broke when I could afford to retire. I didn't need ongoing income.
If you're a professional in this industry and in your thirties, forties, or early fifties, you may not have the means or the comfort to be able to sit back and just do miscellaneous consulting work. You may need a full-time paycheck.
Q: What have you been doing since the case ended?
A: I've done a bit of travel, and I continue to serve on some boards (for a pension fund and trust company). I'm currently an expert witness in two securities-related cases.