The SEC has commenced proceedings against an energy trader for front-running client trades.  According to the SEC, the defendant used his wife’s brokerage accounts to trade ahead of clients after obtaining client instructions from the firm’s portfolio managers.  The SEC cites 400 violations and over $1.7 million in profits.  According to the SEC, the defendant violated the firm’s Code of Ethics by conducting the trading, failing to report his wife’s brokerage account, failing to pre-clear transactions, and misusing material non-public information.  Because the firm also managed registered funds, the SEC has brought charges under the Investment Company Act as well as the Advisers Act and the anti-fraud rules.

OUR TAKE: The good news here is that the defendant’s employer is not facing charges because its Code of Ethics included all the required elements: reporting, pre-clearance, certifications, etc.  The SEC is not holding the firm responsible for an employee that intentionally disregarded his compliance and reporting responsibilities.