After waging a five-year, seven-figure defense against SEC charges, Theodore Urban, the former general counsel of Ferris Baker Watts LLC, has some advice for people who are considering taking on the position of compliance officer or general counsel: be sure the firm will indemnify you for the cost of a defense, or at least try to line up some directors and officers liability coverage.
As discussed here previously, in his role as general counsel, Urban advised his firm on how to deal with the behavior of a rogue broker. The SEC ended up bringing an enforcement action against Urban for not "supervising" that broker, even though Urban did not have any day-to-day responsibility for the employee, Reuters reports.
After an SEC administrative law judge found that (a) that Urban was a supervisor, who ( b) adequately did his job, both the Urban and the SEC appealed--Urban on the finding that he was a "supervisor" and the SEC on the finding that he did an "adequate job." Ultimately, however, the matter was dismissed with no further review after three commissioners recused themselves, leaving the Commission with an unusual 1-1 split on whether to pursue the matter.
In an interview with Reuters in late October 2012, Urban offered several comments about the matter that may be of interest to compliance professionals. First, he noted that the SEC's dismissal of the case left a crucial question unanswered: "Why was someone who had no specific supervisory duties ever deemed to be a supervisor in the first place?"
With that issue still quite unclear, Urban said that he would advise anyone considering a compliance officer of GC position to secure an indemnity agreement with their firm. His legal case, he said, cost "well into the seven figures" to defend but was, fortunately for him, covered by Ferris under such an indemnity agreement. Without indemnity or, alternatively, some kind of D&O insurance, "it's going to be very difficult to mount the defense that needs to be mounted in a case like this," he said.