Judy Wolf did a bad thing. During an insider trading investigation she fudged some documents. The Securities and Exchange Commission investigated the insider trading matter and Ms. Wolf’s log of her review. The fudging was discovered. She was fired and the SEC brought an enforcement against her.
There is some good news from that bad situation. An administrative law judge just dismissed the enforcement case against Ms. Wolf.
Last year, Wells Fargo paid $5 million to resolve the insider trading case that involved the acquisition of Burger King. Ms. Wolf was a compliance professional at Wells Fargo. She conducted an inquiry of trades related to the $3.3 billion Burger King acquisition by 3G Capital in 2010. The SEC launched its insider trading investigation in 2012. Wolf apparently was concerned that her compliance log was inadequate. She went back and added these two sentences:
“Rumors of acquisition by a private equity group had been circulating for several weeks prior to the announcement. The stock price was up 15% on 9/1/12, the day prior to the announcement.”
She fudged the log poorly and wrote “2012” instead of “2010.” Under questioning by the SEC she thought the change would not be discovered. Wells pulled up the document metadata and found the problem.
After the settlement with Wells Fargo, the SEC brought charges against Wolf.
SEC ALJ Cameron Elliott dismissed the enforcement action sanctions. The judge did not condone the action, but found that Wolf willfully aided and abetted and caused Wells Fargo’s violations of Exchange Act Section 17(a) and Rule 17a-4(j) and Advisers Act Section 204(a). Wolf should have known that it was improper to alter compliance records.
There is one additional consideration: the fact that Wolf worked in compliance. Obviously, compliance professionals are subject to the securities laws like everyone else. … In my experience, firms tend to compensate compliance personnel relatively poorly, especially compared to other associated persons possessing the supervisory securities licenses compliance personnel typically have, likely because their work does not generate profits directly. But because of their responsibilities, compliance personnel receive a great deal of attention in investigations, and every time a violation is detected there is, quite naturally, a tendency for investigators to inquire into the reasons that compliance did not detect the violation first, or prevent it from happening at all. The temptation to look to compliance for the “low hanging fruit,” however, should be resisted. There is a real risk that excessive focus on violations by compliance personnel will discourage competent persons from going into compliance, and thereby undermine the purpose of compliance programs in general. That is, “we should strive to avoid the perverse incentives that will naturally flow from targeting compliance personnel who are willing to run into the fires that so often occur at regulated entities.” Comm’r Daniel M. Gallagher, Statement on Recent SEC Settlements Charging Chief Compliance Officers With Violations of Investment Advisers Act Rule 206(4)-7 (June 18, 2015), available at http://www.sec.gov/news/statement/sec-cco-settlements-iaa-rule-206-4-7.html (last accessed July
7, 2015).
A good result for compliance professionals.
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