Janney Montgomery Scott LLC, a registered broker dealer, settled an administrative proceeding which allegated that it failed to maintain and enforce policies reasonably designed to prevent the misuse of material, nonpublic information. In the Matter of Janney Montgomery Secott LLC, Adm. Proc. File No. 3-14459 (July 11, 2011). The firm consented to the entry of a cease and desist order based on Exchange Act Section 15(g) and, in addition, a censure. Under the terms of the settlement the firm will also pay a penalty of $850,000 and implement certain procedures to effectuate its obligations under Section 15(g). Janney also agreed to retain an independent consultant who will prepare certain reports and certify that the firm has established and continues to maintain policies, practices and procedures pursuant to Section 15(g).
The Order for Proceedings alleges that from at least 2005 and continuing through 2009 the policies and procedures for the firm’s Equity Capital Markets division were deficient. That division included its equity sales, trading, syndicate and research departments.
As of October 2004 the firm had no written procedures for its ECM department. The then Chief Compliance Officer asked Compliance Counsel hired to draft retail policies to prepare the first ECM Manual. Several months later Compliance Counsel resigned without completing the manual.
Subsequently, two key sections which were complete and operational were posted on the firm website. Nevertheless, the firm failed to enforce or maintain those policies and procedures. The firm also failed to establish adequate policies and procedures to prevent the misuse of material, non-public information.
Overall the Janney failed to:
- Adequately monitor trading in the securities of companies on its Watch List that its investment bankers were advising where there was a potential for insider trading;
- To maintain an adequate email firewall between its investment banking and research staff, creating a risk that material, nonpublic information could be exchanged and misused;
- Revise its policies and procedures to address its use of analysts in multiple roles, such as helping investment bankers explore business opportunities and conferring with them on deals; and
- Review the brokerage account activity of employees with brokerage accounts at firms other than Janney.
The Order alleged that the firm failed to comply with Exchange Act Section 15(g). That Section, initially enacted as part of the Insider Trading and Securities Fraud Enforcement Act, requires that broker dealers registered with the Commission, establish, maintain and enforce written policies and procedures reasonably designed, to prevent the misuse in violation of the Act of material, non-public information by the broker dealer or any person associated with it. Those policies and procedures must be designed in view of the nature of the firm’s business. Here Janney failed to comply with this obligation according to the Order.