Custody Bank Fined $12 Million Because SVP Paid Kickbacks to Win State Contracts
A large custody bank agreed to pay $12 Million in fines, disgorgement and interest, and its SVP was fined over $250,000 (and terminated), for funneling cash kickbacks and illegal campaign contributions to the Ohio State Treasurer in exchange for the award of pension fund subcustody contracts. The SEC asserts that the SVP ignored corporate prohibitions by hiring a sham lobbyist who funneled money to the Treasurer’s election campaign. The SEC also condemns the hiring of a lawyer/lobbyist who routed illegal campaign contributions. The SEC continues to pursue the lawyer/lobbyist in a separate enforcement action. The SEC alleges violations of Section 10(b) and Rule 10b-5, which prohibit fraudulent conduct in the sale of securities.
OUR TAKE: Although the bank had policies and procedures prohibiting the misconduct, the SEC still holds it responsible for the illegal actions of its employee, even though they relate to violations of state campaign finance laws and not the securities laws. For the employee, we wonder if the potential commissions earned were worth sacrificing his career. And, for the lawyer/lobbyist, the SEC continues its policy of prosecuting securities markets gatekeepers.