COMPLY-Inconclusive result of supervisor case worries ex-counsel

Thu Oct 25, 2012 1:08pm EDT
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By Suzanne Barlyn

WASHINGTON Oct 25 (Reuters) - For more than five years, Theodore Urban battled to save his reputation in a case that could have ended with a new set of responsibilities for all compliance officers - but did not.

Ten months ago, the U.S. Securities and Exchange Commission finally dismissed the controversial civil enforcement case against Urban, who had been accused of not supervising a broker whose misdeeds he brought to light while general counsel of Ferris Baker Watts LLC.

Urban, 62, is relieved that the ordeal is behind him, but said others might find themselves in a similar position because the SEC left a key legal question unanswered: Can compliance professionals and legal staff who make recommendations about employee conduct be deemed supervisors?

The possibility that they could - and then be targeted in regulatory actions - may deter many people from taking such jobs because of the risks involved, compliance professionals say. For now, they say, people continue to sign on for the role, but they are increasingly worried about potential liability and greater scrutiny by regulators.

Urban's case has intensified those fears. The SEC's enforcement unit appealed a decision by an administrative law judge that Urban was a supervisor who adequately did his job. Urban also appealed to the agency's commissioners, adding another wrinkle by arguing that he was not a supervisor at all. But when three commissioners recused themselves for unknown reasons, the case was dismissed.

Urban's woes began when he made suggestions to his firm about how to deal with a rogue broker - including firing him - and then found himself the subject of an SEC enforcement action for not supervising that broker, even though he had no day-to-day responsibility for the employee. The case, he said, was an "albatross" that cost "well into the seven figures" to defend and led to an earlier-than-expected retirement.

Now his former Washington-based brokerage and investment bank is part of RBC Wealth Management, and Urban is getting on with his life.

He spoke with Reuters about his concerns during this week's annual meeting of the National Society of Compliance Professionals in Washington. Edited excerpts of the interview follow:   Continued...