On July 11, 2011, the Securities and Exchange Commission announced today the institution and settlement of an enforcement action against Janney Montgomery Scott LLC, a registered broker-dealer based in Philadelphia. The Commission charged Janney with securities law violations for failing to adequately establish, maintain and enforce policies and procedures to prevent the misuse of material, nonpublic information, as required by Section 15(g) of the Securities Exchange Act of 1934.
According to the SEC’s Order, from at least January 2005 through July 2009, Janney’s policies and procedures that governed its Equity Capital Markets division, which oversaw its equity sales, trading, syndicate and research departments, were deficient in a number of ways. In some instances, Janney did not enforce policies and procedures and, therefore, employees and managers did not understand their responsibilities or what procedures were actually in place. In other instances, Janney did not follow the policies and procedures as written. These failures led to inadequate implementation and enforcement of the firm’s written compliance policies and procedures and created the risk that material, nonpublic information could be misused.
Janney’s failures included, for example:
- Not adequately monitoring trading in the securities of firms on the Watch List, a list that, among other things, enumerates the companies that investment banking was actively advising and was used to identify those securities where the potential for insider trading existed;
- Not adequately maintaining the email firewall between investment banking and research, which posed the risk that material, nonpublic information could be exchanged and misused;
- Allowing noncompliance personnel to chaperone meetings between investment banking and research in violation of Janney’s policies and procedures;
- Not revising its policies and procedures to take into consideration its use of analysts in multiple roles, such as using the analysts’ expertise to help investment bankers explore business opportunities, to attend sales calls with institutional investors and to confer with investment bankers on deals;
- Not requiring its investment bankers to seek pre-clearance for trades;
- Not enforcing the policy that all Janney employees must keep their brokerage accounts at Janney;
- Not obtaining completed annual employee questionnaires that disclosed the existence of employees’ brokerage accounts at firms other than Janney; and
- Not requesting or reviewing the brokerage account activity of employees who had brokerage accounts at firms other than Janney.
Janney agreed, without admitting or denying the Commission’s findings, to the entry of a Commission Order censuring it, ordering it to cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange Act and ordering it to pay an $850,000 civil penalty.
The Commission Order also requires Janney to comply with undertakings to retain an independent compliance consultant to conduct a comprehensive review, make recommendations and prepare written reports regarding Janney’s policies, practices and procedures relating to Section 15(g) of the Exchange Act, including the prevention of the misuse of material, nonpublic information, and certify in writing that Janney has established and continues to maintain policies, practices and procedures pursuant to Section 15(g) of the Exchange Act that are consistent with the findings of the Order.
This information, which is publicly available on the SEC website, it being provided by The White Law Group.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at https://www.whitesecuritieslaw.com.