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Judge rejects most SEC claims against Dallas-area financial execs
By MARK CURRIDEN mark.curriden@texaslawbook.net The Texas Lawbook
Published: 20 March 2015 09:00 PM
Updated: 20 March 2015 09:00 PM
An administrative law judge ruled this week that two Colleyville-area financial executives did little to nothing wrong as top executives for Dallas-based Penson Financial, a now-defunct clearing service for U.S. brokerage houses dealing in stock trades.
The decision is a blow to the U.S. Securities and Exchange Commission, which had won 22 of the 23 previous cases it prosecuted before the agency’s internal tribunal.
The SEC claimed Penson Financial broker-dealers violated new regulations that governed “naked” short sales by failing to borrow the securities in time to make the delivery to the buyer within the required three-day settlement period.
The SEC claimed that former Penson Financial chief compliance officer Thomas R. Delaney II assisted in the rule violations and helped to conceal them from regulators from 2008 to 2011. The agency also accused Penson’s former CEO, Charles W. Yancey, of ignoring “significant red flags” about the alleged misconduct, which allowed his employees to conceal the rule violations.
Judge Jason Patil, a former federal prosecutor, rejected most of the SEC’s allegations.
The judge concluded that Delaney technically violated SEC 204, but said his actions were not intentional, reckless or meant to defraud.
Patil cleared Yancey of any wrongdoing.
“I am unconvinced that Yancey was confronted with any ‘red flags’ requiring follow-up that he failed to take,” said Patil, who noted in his opinion that the evidence presented by Yancey’s lawyers “was frankly overwhelming.”
“This is an action that never should have been instituted and we told the staff and senior management in enforcement that many times,” said Haynes and Boone partner Kit Addleman, who represents Yancey.
“The [SEC] staff members in this matter ignored key facts and overstepped boundaries in recommending that this action be brought,” said Addleman, who is a former director of the Atlanta regional SEC office. “They were blinded by their aggressiveness and personal feelings.”
The SEC has increasingly sought to bring charges against broker-dealers and others involved in alleged securities fraud matters to administrative law judges employed by the SEC, instead of filing its cases in federal court, where they would be handled by an independent federal judge and possibly a jury.
During the past three years, the SEC lost only one of the 23 cases it filed with administrataive law judges.
By comparison, the agency lost one-third of the cases it brought in federal court during the same time period.
The SEC has the right to appeal Thursday’s decision to the its five-member commission, which is the body that authorized the agency to bring the case at the start.
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