Noncompliance Roundup: Stifel, Nicolaus; Citigroup; Janney

On August 11, the SEC charged Toby Scammell, who the agency says worked at an investment fund in 2009, with insider trading that generated a 3,000% profit based on confidential information that he learned from his girlfriend prior to Walt Disney Co.'s acquisition of Marvel Entertainment.

The SEC alleges Scammell secretly used money in his brother's accounts over which he had been given control when his brother was deployed to serve in Iraq to purchase the Marvel securities, though he did so without informing his brother or girlfriend.

According to the complaint filed in U.S. District Court for the Central District of California, "Scammell's girlfriend worked on the Marvel acquisition as an extern in Disney's corporate strategy department, and she possessed confidential details about the pricing and timing of the deal. Scammell illegally traded on this non-public information in breach of his duty of trust and confidence to his girlfriend. Marvel's stock price jumped more than 25 percent after the Aug. 31, 2009, public announcement, and Scammell then sold all of his Marvel options."

In a statement, Rosalind Tyson, director of the SEC's Los Angeles regional office, said "Scammell exploited his romantic relationship for a financial windfall. His misuse of confidential information gave him an unfair and illegal edge over other traders in the markets."

Scammell has disputed the charges in a scathing attack on the SEC's capabilities (or lack thereof) on a Tumblr page. 

SEC Settles Enforcement Case for $850,000 With Janney  Montgomery Scott

The SEC in July settled an enforcement case against Janney Montgomery Scott and assessed an $850,000 penalty for Janney's failure to adequately establish, maintain and enforce compliance policies and procedures reasonably designed, taking into consideration the nature of its business, to prevent the misuse of material, nonpublic information. 

Patrick Burns (above) of The Law Offices of Patrick J. Burns, commenting on the case, notes that while it was brought as a broker-dealer case, the penalty assessed against Janney should serve as a warning to investment advisors as well, that a firm's compliance policies and procedures must be carefully tailored to the firm's business practices, well maintained and effectively carried out. 

In a summary provided by Burns, the SEC had charged that from at least January 2005 through July 2009, Janney had first distributed separate written policies and procedures for its Equity Capital Markets (ECM) division, which oversaw its equity sales, trading, syndicate and research. Those policies and procedures known as the ECM Compliance and Supervisory Manual also governed Janney's Investment Banking group, which is part of the Capital Markets division. As late as July 2009, parts of the ECM Manual, as posted for the use of Janney's employees, were incomplete.

The summary further states that  the SEC charged that Janney's implementation of its policies and procedures was deficient in a number of ways. In some instances, Janney did not enforce the policies and procedures in the ECM Manual and therefore, employees and managers did not understand their responsibilities or what policies were actually in place. In other instances, Janney did not follow the policies and procedures as written. These failures, the SEC charged, led to inadequate implementation and enforcement of the firm's written compliance policies and procedures.