When a Compliance Officer Breaks Bad

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There has been considerable discussion in the compliance community around the Securities and Exchange Commission bringing charges against compliance officers. There are three areas that the SEC feels it is justified in bringing charges: (1) when the compliance officer is involved in the wrongdoing; (2) when the compliance officer impedes the examination or investigation; and (3) when the compliance officer is in wholesale failure. The latest SEC charges against a compliance officer fall into the first area.

Breaking Bad long

Yue Han was an associate in the compliance department of Goldman Sachs. That gave him access to the emails of the investment bankers to look for potential misconduct. The SEC claims that Mr. Han broke bad and used the information he gathered from those emails to spot upcoming M&A activity for his own personal gain.

Mr. Han has not settled the charges so this story is based only the SEC’s allegations. He left the country and may not dispute the charges. The SEC has gotten an asset freeze, so he will have to fight the claim if he wants the cash back.

The SEC claims that its case stems from its Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns. The SEC claims that its enhanced detection capabilities enabled SEC enforcement staff to spot Han’s unusual trading activity in two different accounts.

Four companies are at the center of the SEC’s case: Yodle, Zulily, Rentrak, and KLA.  In each case, he bought out-of-the-money options cheaply just before an acquisition was announced and recognized a big gain after an acquisition was announced. Goldman Sachs was an adviser in each of the deals.

In one of the Han trading accounts, the broker-dealer barred him from acquiring further trading in the account. I assume the firm noticed the suspicious trading.

The complaint leaves out whether or not Mr. Han cleared his trades with Goldman. I would assume not since the firms would have been on the blocked list.

I would guess that Mr. Han is not going to dispute the charges and try to re-gain his trading profits.

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Author: Doug Cornelius

You can find out more about Doug on the About Doug page

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