Enforcement: SEC acts against former regulator alleging compliance failings
58 year old Theodore W Urban held a number of licences from the USA's Securities and Exchange Commission, where he had been an Assistant Director in the then "Division of Market Regulation." There was therefore little excuse for his alleged failures as a member of the Board of Ferris Baker Watts where he supervised the compliance department.
More importantly, it shows how compliance officers are exposed, and why they must have independence and authority.
A hearing has been called, but a date not yet set, for the Commission to present the allegations and evidence from both sides on a range of issues to be heard by an Administrative Court Judge.
At the core of the SEC's allegations are that Urban neglected to or deliberately did not act on internal reports of suspicious transactions that a trader at FBW was manipulating the price of shares in Innotrac, Inc.
Although Urban took up with the Board the issue of market manipulation, he did not insist on the dismissal of the trader, even though that had been his initial thought. Worse, although he filed a report with the SEC, it related only to unauthorised trades and not to the wider issues which he had outlined in his original report to the Board.
Also, Urban did not ensure that special supervision placed on the trader as an alternative to dismissal was actually carried out.
The trader, Stephen Glantz of Chagrin Falls, Ohio, pleaded guilty to a single charge of security fraud and an incidental offence. In 2007, he was sentenced to 33 months' jail and ordered to pay USD110,000 in restitution.
Others involved include
Louse Akers, 57 years, of Reisterstown, Maryland
Patrick J Vaughan, 54 years, of Cockeysville, Maryland, reporting to Akers. The Commission has found that Vaughan failed to properly supervise Glantz.
IPOF Fund, an Ohio limited partnership and not registered with the SEC. Formed by David A Dadante in 1999. The SEC alleges that it was "operated as an investment company and solicited funds from investors purportedly to purchase stock in IPOs. Dadante, the SEC says, "caused IPOF to raise USD50 million from at least 100 investors in unregistered securities offerings and used some of the proceeds to fund his lavish lifestyle and to make ponzi scheme-type payments." Other allegations are made in addition. He was sentenced on two charges of securities fraud and sentenced to 156 months in prison on 14 December 2007 and ordered to pay USD28 million in restitution. Aged 54, he is a former resident of Gates Mills, Ohio.
The SEC has made no suggestion that Innotrac, which provides outsourcing services "to large corporations," was implicated in the manipulation of its share price.
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