The SEC issued a cease and desist order against the Head of Regulatory Reporting of a large investment bank for causing violations of the firm’s customer protection rule. As previously reported, the firm agreed to pay $415 Million to settle the charges. The SEC faults the respondent, who also served as the Financial and Operational Principal, with misleading regulators about the true purpose of certain synthetic transactions intended to reduce the amount held in the firm’s reserve account. The SEC cites FINRA’s handbook which prohibits any window dressing designed to reduce the reserve formula.
OUR TAKE: It is noteworthy that the Head of Regulatory Reporting was the only individual specifically charged by the SEC in this action even though the firm paid a staggering settlement. Regulatory officers, including CCOs and FINOPs, continue to be targeted by the regulators.
The SEC fined and barred an investment bank’s head CMBS trader for lying to customers about pricing, spreads, and compensation over a 2-year period. According to the SEC, the defendant oftentimes used elaborate stories and doctored documents to support his untrue statements. The SEC asserts that clients relied on the incorrect information when making purchase/sale decisions. The SEC maintains that the respondent knowingly ignored compliance policies requiring truthfulness in dealings with customers. The defendant benefitted through higher discretionary bonuses resulting from his illicit activities, thereby making him directly liable for securities fraud.
OUR TAKE: It is noteworthy that the SEC took action against the trader himself rather than his firm, which presumably avoided liability because it had implemented adequate policies and procedures. SEC Commissioner Piwowar has previously indicated that the SEC should pursue individuals rather than firms.