Broker-Dealer Litigation - Greenberg Traurig LLP

The firm and Smith consented to the entry of the SEC’s order, which concluded that the
firm and Smith failed reasonably to supervise Keating within the meaning of Section 15(b)(4)(E)
of the Exchange Act, and within the meaning of Section 203 (e) of the Advisers Act, when it
failed to supervise Keating with a view to detecting and preventing violations of Section 15 (a)
of the Exchange Act. As a result, the firm consented to an undertaking to retain an independent
consultant to review its policies, procedures and systems relating to supervision and outside
business activities, and make recommendations for improvements. The firm also agreed to
provide, at its own expense, a copy of the SEC’s order to all current customers and all
prospective customers for a period of two years. As a result of a demonstrated inability to pay,
the SEC declined to impose a civil money penalty against the firm.
Smith consented to a nine-month suspension from association with any broker or dealer
or investment adviser in a supervisory capacity for a period of nine (9) months, as well as a civil
money penalty of $25,000.
Matter of Ellis, Admin. Proc. File No. 3-14328, SEC Release No. 34-64220, 2011 SEC LEXIS
1199 (April 7, 2011).
Although not charged as a failure to supervise violation under Section 15(b) of the
Exchange Act, this settled administrative proceeding, arising out of violations by GunnAllen
Financial, Inc. (“GunnAllen”), have supervisory overtones. The SEC alleged that GunnAllen
violated Rule 30(a) of Regulation S-P (17 C.F.R. § 248.30(a)) (the “Safeguard Rule”), which,
according to the SEC order, “requires broker-dealers to, among other things, adopt written
policies and procedures reasonably designed to protect customer information against
unauthorized access and use.” The SEC found that although GunnAllen maintained written
supervisory procedures for safeguarding customer information, they were inadequate and failed
to instruct the firm’s supervisors and registered representatives how to comply with the
Safeguard Rule. Respondent Ellis, who served as GunnAllen’s Chief Compliance Officer, had
responsibility for maintaining and reviewing the adequacy of GunnAllen’s procedures for
protecting customer information. The SEC charged Ellis with failing to direct the firm to revise
or supplement is procedures for safeguarding customer information, after he became aware that
three laptop computers were stolen and a registered representative’s computer password
credentials were compromises, such that customer information collected by GunnAllen was
placed at risk of unauthorized access and use. Ellis consented to the entry of the SEC order,
which concluded that he aided and abetted and caused GunnAllen’s violations of the Safeguard
Rule.
As a result, Ellis consented to a cease and desist order from committing or causing any
violations and any future violations of Rule 30(a) of Regulation S-P under the Exchange Act, a
censure, and a civil money penalty of $15,000.
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