SEC Clears Ted Urban--Sort Of

What is going on with the SEC's decision regarding Ted Urban, the former General Counsel of Ferris Baker Watts? Three out of five Commissioners didn't participate in the decision, having recused themselves. The remaining two Commissioners were apparently unable to agree on what to do about the case. This in one of the most high-profile administrative proceedings in recent SEC history.


To recap, the SEC issued an Order Instituting Proceedings ("OIP") in October 2009. The OIP alleged that Urban was a supervisor of a broker who had engaged in securities fraud and that Urban had failed to properly supervise the broker. This was a big deal, because very few securities industry professionals believed that a General Counsel in Urban's position could be properly viewed as a "supervisor" under the securities laws. In September 2010, the Administrative Law Judge, analyzing Urban's actions in light of John H. Gutfreund, 51 S.E.C. 93 (1992), dismissed the allegations, finding that Urban was, in fact a supervisor (while acknowledging that this analysis meant that a number of different people at the firm could have been viewed as the broker's supervisor because they had the ability to affect his conduct) but that he had properly discharged his supervisory responsibilities. The Division of Enforcement appealed this initial decision and the Commission's decision on the appeal was issued on January 26, 2012.


The ALJ decision was criticized at the time it came out, not for absolving Urban, which most agreed was proper, but for the ALJ finding that Urban was a "supervisor." It was hoped that the Commission might shed some light on this issue in the appeal. Instead, because only two Commissioners considered the appeal and could not agree, the Commission in effect appears to have punted. Because the effect of the two Commissioners' inability to agree on how to decide the appeal is to render the ALJ decision "of no effect," the securities industry is left with no clear guidance about what the SEC's current thinking may be regarding who is, and is not, a supervisor under Gutfreund and, assuming that Urban was a supervisor, whether the steps he took in responding to the broker's misconduct were reasonable under the circumstances. The SEC's decision does not even detail what issue split the two deciding Commissioners.


This is a real shame, since this case appeared to provide the SEC with a golden opportunity to set the standard in this area, which has become less and less clear as SEC and FINRA staff have continued to interpret Gutfreund in specific cases under different factual circumstances without any additional Commission guidance in the last 20 years. Maybe next time!