Tag: Ted Urban

These are my notes from the NRS Fall Compliance Conference.

Who better to talk about supervision than Ted Urban himself. He was the general counsel and chief compliance officer. One of the firm’s registered representatives went rogue. He and other line supervisors were charged by the SEC for failure to supervise.

Urban pushed for the registered representative to be fired, but his supervisor merely put him under special supervision.

The SEC’s theory was that Urban could affect the rep’s behavior. The SEC took the position that even if Urban’s action were not authoritative, they could be viewed as authoritative. However even though Urban recommended the firing, he did not have the power to fire.

In the administrative decision, the ALJ found that Urban was a supervisor, but that his supervision was reasonable. The charges would have been dismissed. Urban appealed the decision that he was a supervisor and the SEC appealed the decision that the supervision was reasonable.

The Commission was responsible for hearing the appeal. However, two of the commissioners recused themselves and the other two came down on opposite sides.  Urban pointed out that he had no idea why the commissioner recused themselves and there seemed to be no obvious reason why they would. (That is apart from  the commissioners being the ones to have authorized the enforcement action in the first place.)

The Urban case has been hanging over compliance officers heads. If you are considered a supervisor then you are at risk for your positions not being followed. Mr. Urban provided a prior case that dealt with CCO supervisor liability.

In Gutfreund (1992) four senior managers got together to discuss a compliance problem, they all left the room and no one did anything. The SEC took the position that all are liable, including the head of legal and compliance.  The standard was that legal and compliance can be supervisors when they have “the requisite degree of responsibility, ability or authority to affect the conduct of the employee whose behavior is at issue.”

On February 24, 2012, Commissioner Dan Gallagher gave a speech about compliance and supervision. He said the issue of when compliance equals supervision has been
raised in cases, but never answered in the “clear and definitive” manner it deserves.
The question “remains disturbingly murky.” He posed the question: how do we distinguish “robust engagement” in a culture of compliance from supervision and avoid the perverse incentives created by an overbroad definition of supervision.