A financial adviser
was sentenced to more than 7 years in prison and ordered to pay over $3 Million
in restitution for misappropriating client funds by forging client signatures
and altering account statements. The
SEC alleged that the defendant made 56 unauthorized withdrawals from client
account over a five-year period. The SEC
also charged that the defendant lied to her firm and provided fake
documentation to hide her activities.
The SEC charged her with violating the Advisers Act and with securities
fraud. The prison sentence arose from
parallel criminal proceedings brought by the U.S. Attorney for the District of
Massachusetts for wire fraud, investment adviser fraud, and aggravated identity
Although the SEC does not have criminal prosecution powers, it has the discretion to refer matters to the U.S. Attorney once it uncovers securities wrongdoing. If the DoJ can make a federal criminal case because of fraud or theft, an investment adviser can end up a guest of the state for several years.
The Department of Justice has revised its corporate prosecution policy to allow credit to corporations that identify senior officials without identifying every individual involved. In criminal cases, the defendant corporation must identify “every individual who was substantially involved in or responsible” for the misconduct. In civil cases, the corporation must identify every person “who was substantially involved” to earn maximum cooperation credit. The new policy offers prosecutors discretion over the prior policy, which according to Deputy Attorney General Rod Rosenstein, made prosecutions more difficult, time-consuming, and inefficient. Mr. Rosenstein made clear that “pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation.”
Many defense lawyers had hoped that the Rosenstein-led Justice Department would completely rescind the Yates memo, which requires the prosecution of individuals and only allows cooperation credit if companies identified the wrongdoers . The revised policy that focuses on senior officials and those substantially involved makes practical enforcement sense but probably offers little comfort to senior executives facing off against the Department of Justice.