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SEC Hits Former Merriman General Counsel and CEO for Fraud on Their Watch
The Recorder
November 11, 2009
The government is making the former general counsel and CEO of San Francisco investment bank Merriman Curhan Ford pay for the sins of a rogue banker.
Former GC Christopher Aguilar and CEO Jon Merriman, as well as the firm, settled Securities and Exchange Commission charges that they failed to properly supervise David "Scott" Cacchione. Cacchione pleaded guilty to fraud in March for e-mailing customer accounts to financier-turned-fraud artist William "Boots" Del Biaggio III, which were used to scam banks out of $50 million worth of loans.
The San Francisco SEC office continued to investigate Merriman Curhan after the guilty plea. The SEC lawyers did not find that Aguilar and Merriman participated in the fraud -- or that the two should even have known about it. But they concluded that the two senior executives should have done more to prevent it from happening in the first place.
"When you find major frauds at a broker dealer like this, you're going to naturally look at 'Where is the supervision?'" said Michael Dicke, the enforcement director of the San Francisco office.
Aguilar, the SEC claims, placed Cacchione on heightened supervision because of a disciplinary history over his career, which was to include a daily review of the broker's e-mails. SEC branch chief Kristin Snyder, who worked on the case, said Aguilar delegated that responsibility to a lower-level employee and never followed up.
"Once he put that plan in place, he never did anything to make sure that it was followed," Snyder said.
The SEC also claims that the two Merriman executives didn't follow up after an elderly customer complained that Cacchione bought penny stocks in her account without her permission.
Aguilar, who left Merriman to be GC at Institutional Cash Distributors, will pay a $40,000 penalty and be barred from being a brokerage supervisor for a year. Aguilar no longer works at ICD, but will serve as outside counsel for the company, said Jeffrey Bornstein, a K&L Gates partner who represented Aguilar as well as the investment bank.
Bornstein said his client fully cooperated with the investigation, and he emphasized that Aguilar wasn't implicated in the fraud.
Merriman, who co-founded the bank, was represented by William Kimball and John Hemann at Morgan, Lewis & Bockius. Merriman agreed to pay a $75,000 penalty and also to be barred from supervising brokers for a year.
The investment bank itself agreed to pay a $100,000 fine. Michael Doran, Merriman Curhan's new general counsel, said, "We're pleased that there was no finding or allegation of any fraud by anyone other than Cacchione."
Jay Gould, a corporate and securities lawyer at Pillsbury Winthrop Shaw Pittman who was not involved in the case, said that such "20-20 hindsight" cases are common against brokerage supervisors.
"In this regulatory climate, clients really have to wake up to the fact that they are subject to the Monday morning quarterbacking of the regulators," he said.
Gould said the penalties in this case were not on the heavy side, since the SEC could have banned the executives from even being associated with brokerages, instead of telling them they can't work as supervisors.
