| NEW YORK
NEW YORK May 19 The U.S. Securities and
Exchange Commission charged four former officials at a Penson
Worldwide Inc unit with violations of a post-financial crisis
rule on securities lending that was designed to help markets
function by ensuring that trades are completed.
Rule 204 of Regulation SHO was adopted by the SEC in July
2009 to curb abuses in "naked" short sales, where investors sell
shares short without first borrowing those shares or making sure
they can be borrowed. An inability to deliver such shares in a
timely manner is called a "fail."
According to the SEC, Thomas Delaney, once chief compliance
officer at Penson Financial Services, knew the now-bankrupt
clearing services firm's procedures for selling customer margin
securities were causing rule violations, yet affirmatively
assisted the violations and concealed them from regulators.
The SEC also said Charles Yancey, once the unit's chief
executive, ignored "significant red flags" about Delaney's
involvement in the violations, including the alleged
concealment. Two other former Penson officials settled related
charges, the SEC said.
According to the SEC, when Penson loaned stocks in customer
margin accounts to third parties, and the customers then sold
the stocks, the firm waited too long to recall the loans. It
said this led to "serial failures to deliver," sometimes lasting
"This enforcement action seeks to hold Penson executives
responsible for choosing profits over compliance with Regulation
SHO," SEC enforcement chief Andrew Ceresney said in a statement.
The SEC said it plans to litigate against Yancey and Delaney
in administrative proceedings and settled with former Penson
securities lending officials Michael Johnson and Lindsey Wetzig.
Without admitting or denying the findings, Johnson agreed to
pay a $125,000 penalty and accept a five-year securities
industry ban, while Wetzig agreed to a censure, the SEC said.
Kit Addleman, a lawyer for Yancey, said: "The SEC is
attempting to hold the CEO of what was once the second-largest
clearing firm in the country responsible for technical
violations that he wasn't involved in. The SEC's claims are
baseless, and we look forward to disproving them."
Brent Baker, a lawyer for Delaney, said his client is
"confident that he will prevail."
Lawyers for Johnson and Wetzig did not immediately respond
to requests for comment.
Before the case was announced, SEC Commissioner Kara Stein
on Monday said gatekeepers like chief compliance officers should
be held more accountable for oversight, and that the regulator
could "provide guidance that sets clearer expectations on what
it means to act appropriately." She spoke at a Compliance Week
conference in Washington, D.C.
Penson Worldwide filed for Chapter 11 protection in January
2013 with the Delaware bankruptcy court. The court approved
Penson's liquidation in July.
(Reporting by Jonathan Stempel in New York; Additional
reporting by Sarah N. Lynch in Washington, D.C.; Editing by