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Chief Compliance Officer, a Former SEC Staffer, Indicted for Stealing Confidential Investigation Information

 

The U.S. Attorney for the Eastern District of New York has indicted the former Chief Compliance Officer of a private equity firm for obstructing justice and illegally accessing confidential government information.  According to the indictment and press accounts, the defendant misused his position and access as an SEC employee to obtain information about a pending investigation of the private equity firm while negotiating his new position.  The firm itself is being investigated for sales practice violations. The defendant faces more than 20 years in prison.

This case is Exhibit A for why there should be limits on the revolving door between the regulators and firms they are charged with regulating.  An inherent conflict of interest exists when a former regulator represents a firm being examined or investigated.  The Project On Government Oversight (POGO) published a report in 2013 titled “Dangerous Liaisons: Revolving Door at SEC Creates Risk of Regulatory Capture,” outlining the scope of the problem.  At the very least, we would recommend a 12-month cooling-off period before a private firm could hire a former regulator and an outright ban if the firm is currently under investigation. 

Execs Face Up to 5 Years in Prison for Lying to SEC

Two former employees of a biotech have pleaded guilty to criminal charges of obstructing an SEC investigation.  The Justice Department accuses one of the defendants with testifying falsely before the SEC about his manipulative purchases and sales of the OTC-traded biotech.  The other employee is accused of providing a back-dated document to the SEC with the intent to obstruct the SEC’s investigation.  The two defendants face prison sentences of up to 5 years for obstructing an agency proceeding. 

Although the SEC only has civil enforcement powers, it can (and will) bring in the Justice Department if you lie to SEC investigators.  Better to take your civil medicine (fine or industry bar) than to wind up a guest of the state. 

Fund Manager Pleads Guilty to Obstruction of Justice for Lying During ALJ Hearing

lying-under-oath

A private fund manager has pled guilty to obstruction of justice for misstatements made during an SEC administrative hearing.  The SEC charges that the respondent misled investors about the use of funds and profitability of fund investments.  During the ALJ hearing, the SEC alleges that the respondent lied under oath that he did not control a related company.  The SEC asserts that the respondent set the company up in his son’s name because of the SEC investigation.

OUR TAKE: SEC investigations and hearings should not be taken lightly.  Misstatements can lead to prison time.

https://www.sec.gov/litigation/litreleases/2016/lr23691.htm