SEC DISMISSES CASE AGAINST IN-HOUSE LAWYER WHO DIDN’T KNOW THAT HE ASSISTED ILLEGAL LATE TRADING
The full SEC dismissed charges against a broker-dealer’s General Counsel who drafted a mutual fund late trading agreement. The SEC opined that the lawyer did not act with the requisite intent to violate the securities laws because he did not know that allowing trading after fund cut-off times was illegal. The lawyer, who had a general practice background, testified that he knew nothing about the securities laws when he joined the firm. The testimony indicates that the lawyer’s superiors instructed him to focus on the indemnification provisions of the agreement, rather than on the trading cut-off times. The SEC rejected the argument that the lawyer acted negligently because he was never asked about the permissibility of the trading, and because the firm did not rely on the lawyer to ensure compliance with the securities laws.
OUR TAKE: Where is the SEC going with this standard of care? Does this discourage knowledge of the regulatory environment so that a defendant can later argue that he lacked the requisite intent to incur regulatory action? Shouldn’t lawyers have a more general obligation to know the law applicable to the businesses where they work? Does this encourage potential wrongdoers to hire lawyers from outside the industry to use as non-thinking instruments to carry out their schemes?