The former general counsel of D.C.-Baltimore investment bank Ferris, Baker Watts, Inc. appears to be off the hook after a Securities & Exchange Commission administrative law judge ruled today that he did not fail to reasonably supervise a rogue broker.
In a 57-page initial decision that may be reviewed by the SEC commissioners, Administrative Law Judge Brenda Murray found that as general counsel, Theodore Urban “performed his responsibilities in a cautious, objective, thorough, and reasonable manner.”
While praising the SEC’s “regulatory zeal” in going after Urban, Murray wrote that it was not in the public interest to impose sanctions against him.
The case revolved around the activities of a broker, Stephen Glantz, who admitted participating in a scheme to manipulate the market for the stock of Innotrac Corp. from 2002 to 2005. The SEC also found that in February 2005, Glantz engaged in unauthorized and manipulative transactions in the stock of ATC Healthcare, Inc.
Glantz pleaded guilty to violations of Section 10(b) of the Securities Exchange Act of 1934. On December 14, 2007, he was sentenced to 33 months in prison and ordered to pay $110,000 in restitution.
The question before ALJ Murray was whether Urban was Glantz’s supervisor, and if so, did he act reasonably in supervising him.
In her decision, Murray found that Urban “was not Glantz’s supervisor in the sense that he did not have the power normally associated with supervision.”
But as general counsel, she found, “Urban’s opinions on legal and compliance issues were viewed as authoritative and his recommendations were generally followed,” and that case law dictated he was his supervisor.
However, she found that Urban was not negligent in his oversight role. “Given Urban’s credibility, his reputation for integrity, his numerous good faith attempts to deal with Glantz’s supervision, I find that Urban acted reasonably in these facts and circumstances.”
Urban was represented by a team from Gibson, Dunn & Crutcher led by partners David Burns and John Sturc. They could not be reached immediately for comment.
The SEC lawyers were James Lundy, John Birkenheier, and Benjamin Hanauer.
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