SIA Annual Seminar, Day 1
Major Liabilites Break-out session
The Major Liabilities panel began with some eye-opening statistics: in the last year alone, regulatory agencies issued fines totaling more than four billion dollars; civil penalties totaled more than fourteen billion dollars; and, there were more than 100 criminal prosecutions of CEOs/CFOs.
Such financial penalties can be the nail in the coffin for a broker/dealer firm (think Arthur Andersen). The panel explored some possible defense theories that should be explored when a brokerage firm is faced with the threat of regulatory fines or civil penalties.
First, you might want to take a look at the SEC's January 2006 statement regarding financial penalties. That statement articulates three factors considered by the SEC in determining whether to impose a fine. Specifically, the panel noted a requirement that the broker/dealer receive a "direct benefit" as a result of the alleged wrongdoing. The panel theorized that it might be possible to argue that the individual wrongdoer(s) benefited and that no direct benefit inured to the broker/dealer firm.
A second theory focuses on the SEC's own admission that it is having a hard time distributing disgorged funds and penalty monies to victims. The panel mentioned that it could therefore be possible to argue that the system is not working, the money is not ending up in the hands of the victim, and as a result, imposing an excessive penalty fails to make the victim whole and should therefore be avoided.
Finally, the panel noted that many complaints state settlements that the defending broker/dealer firm may have entered into with the SEC. The panel noted that some courts in the 2nd Circuit have been willing to grant motions to strike regarding such settlements, reasoning that the settlements are not admissions and are prejudicial.
