Do general counsel have a responsibility to closely supervise rogue employees? In the case of former Ferris, Baker Watts, Inc. general counsel Theodore Urban, the Securities and Exchange Commission says: Well, maybe. Or maybe not.
In a case that many hoped would clarify how the SEC views the duties of general counsel, the charges against Urban, for failing to properly supervise a broker were dismissed Thursday [PDF].
And it left the big picture of the SEC’s views as cloudy as ever.
That’s because the dismissal came after the only two participating commissioners split on whether the allegations were established. Under commission rules, a majority must agree on the disposition of a case or it is dropped. So call it a tie.
It all started when Urban, then GC and a member of the board of directors of FBW, recommended firing a troublesome broker. The broker’s top supervisor, who was also vice chair of the board, said not to, and volunteered to closely supervise the employee instead.
The broker, however, went on to commit criminal securities violations, to which he later pleaded guilty. In September 2009, SEC lawyers charged Urban with failing to reasonably supervise that broker.
The SEC attorneys argued that once Urban saw the red flags raised by the broker’s conduct, the GC was obligated to respond vigorously. They suggested Urban should have taken his concerns to the board of directors, and not given in to the supervisor’s pressure.
But Chief Administrative Law Judge Brenda Murray disagreed and dismissed the case [PDF] in September 2010.
