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SEC sanctions chief compliance officer for failing to stop insider-trading scheme

The SEC sanctioned the former president and chief compliance officer of Private Capital Management Inc. for failing to stop an insider-trading scheme involving an employee at his firm.

Thomas E. Meade was cited for supervisory failures at the Denver-based investment adviser after he agreed, without admitting or denying the SEC’s findings, to be censured and barred from serving in a compliance or supervisory capacity at a broker-dealer, transfer agent or investment advisory company.

He was also fined $100,000 and ordered to cease and desist from further violating sections of the Investment Advisers Act pertaining to fraudulent or deceitful transactions by investment advisers.

The SEC found that Meade failed to prevent, detect or respond to insider trading by a former firm executive that Meade had supervised named Drew Peterson.

Peterson had been given a tip from his father, a member of the board of directors at Mariner Energy Inc., about an upcoming acquisition of Mariner. Peterson then tipped a hedge fund manager with the material, nonpublic information, and both men bought Mariner stock before the deal was announced publicly. The men than sold the stock after the price went up.

All three men — Peterson, his father and the fund manager — were convicted of insider trading after pleading guilty in 2011.

The SEC said in its cease-and-desist order that Meade:

  • Had a personal relationship with Peterson’s father, and therefore knew of the unique risks of Peterson misusing material, non-public information based on this company.
  • Failed to adequately collect and review records of personal trading by firm employees and maintain restricted or watch lists of stocks as required under the firm’s policies and procedures. 
  • Did not conduct any investigation of the trading as required by the firm’s policies and procedures, even after learning of Peterson’s misconduct, or to document violations of its Code of Ethics.

The SEC said Meade overly relied on employees to self-report violations and failed to review transaction reports in a systematic way. “Instead, [Meade] relied on a practice of reviewing transactions arbitrarily, doing cursory scans of the accounts on an irregular basis,” the SEC said.

The SEC had sent Private Capital a deficiency letter on April 21, 2011 that included a provision requiring Meade to “review as needed and at least quarterly all Holding Reports and Quarterly Securities Transactions Reports or monthly statements and trade confirmations.”

Despite the SEC’s warning, “Meade continued his arbitrary practice of conducting cursory reviews of employee transactions,” the agency said in its order.

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Julie DiMauro is the executive editor of FCPA Bog and can be reached here.

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