The SEC commenced enforcement proceedings against a public plan’s former Fixed Income Director and two brokers for a kickback scheme whereby the public official steered brokerage business in exchange for personal gifts. The U.S. Attorney’s Office also announced parallel criminal charges. The SEC alleges the brokers bribed the public official with combined gifts totaling more than $180,000 over a 2-year period, which gifts included jewelry, tickets, trips, restaurants, cocaine, and prostitutes. The SEC also asserts that the 3 respondents conspired to hide the gifts from reporting and disclosure. The SEC charges that the public official breached his fiduciary duty to the public plan and thereby violated the securities laws. The SEC’s Enforcement Director expressed the SEC’s position on public corruption: “This action demonstrates that the SEC will not tolerate public officials who abuse public pension funds to satisfy their own greedy and wanton desires.”
OUR TAKE: The SEC is expanding its regulatory jurisdiction by pursuing public corruption cases. Although the public official’s alleged conduct certainly violated the plan’s policies and state (and federal) laws, the SEC employs a broad application of the fiduciary duty to assert that the conduct amounted to fraud in the purchase or sale of a security. The SEC may use this same legal theory to enforce the DoL’s fiduciary rule.