Whether you are an investment adviser in the private sector or one of the SEC’s own employees, the Commission will not hesitate to charge you with securities fraud if they determine you have committed misconduct, regardless of your association. Such was the case with David Humphrey, one of the SEC’s former employees.
From 1998 to 2014, Humphrey worked as a staff accountant, and later as branch chief, in the U.S. Securities Exchange Commission’s Division of Corporation Finance. During that time, he allegedly concealed his personal trading from the SEC’s ethics office and misrepresented his trading activities to the SEC’s Office of Inspector General during an investigation.
To help protect the agency and its employees against the appearance of using public office for personal gain, SEC employees must abide by strict ethics rules regarding securities transactions. They are prohibited from trading in options and derivatives and they must disclose their securities holdings and transactions to the agency’s ethics office in annual filings.
Humphrey violated these rules when he engaged in transactions that involved derivatives, failed to obtain pre-clearance before trading non-prohibited securities, and failed to hold securities for the required period.
Because of his actions, on May 9, 2017, the SEC charged Humphrey with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act. He has agreed to pay $51,917 in disgorgement of profits made in the improper trades plus $4,774 in interest and a $51,917 penalty—all of which is subject to court approval. Additionally, Humphrey agreed to be permanently suspended from appearing and practicing before the SEC as an accountant.
As one can see with this case and others like it, securities fraud violations are not tolerated. Therefore, it is imperative for firms to proactively investigate whether any of their associates are attempting to circumvent ethics policies and violating federal securities laws. Jacko Law Group, PC can help financial firms develop and evaluate internal controls that will help detect and prevent such violations before they occur. For more information, please contact one of our securities attorneys at 619.298.2880 or firstname.lastname@example.org.