An administrative law judge has dismissed allegations that the former general counsel of Ferris, Baker Watts Inc., Theodore W. Urban, failed in his supervision of a broker who was subsequently convicted in a fraud that cost clients millions of dollars.
The judge's opinion, filed this week, could mark the end of the last federal prosecution into the trading scandal that revealed a lack of leadership, an unclear chain of command and missed opportunities to stop the scheme at the former Baltimore brokerage firm.
The scheme exposed the firm to a lengthy investigation by the Securities and Exchange Commission. Ferris and several managers, including Louis J. Akers, the firm's former vice chairman and head of retail sales, have settled with the SEC. The firm also paid $7.2 million to about 100 investors to settle civil lawsuits.
Ferris agreed to sell itself to RBC Wealth Management, a subsidiary of Royal Bank of Canada, for $230 million in February 2008, one year after the federal investigation was disclosed.
The SEC's enforcement division can appeal the judge's decision in the Urban case to the regulator's five commissioners. Agency spokesman John Heine said in a statement that "we are reviewing the judge's decision."
The SEC had accused Urban, who also headed Ferris' compliance department, of ignoring repeated warnings about unauthorized trades and questionable activities of broker Stephen Glantz. Urban contested the allegations, and Chief Administrative Judge Brenda P. Murray ruled in his favor after a lengthy hearing in March.
"The overwhelming evidence is that Urban was not responsible and had no authority for hiring, assessing performance, assigning activities, promoting or terminating employment of anyone outside of the people in the departments he directly supervised," Murray wrote in a 57-page opinion.
Urban could not be reached Thursday. John Sturc, a partner at Washington firm Gibson Dunn who represented Urban, said that his client "felt all along that he had done the right thing."
Urban "advised his clients of what the issues were and what ought to be done, and believed he had done his job appropriately," Sturc said. "He felt strongly that if all the facts were heard that the judge would agree with him, and he was right."
Glantz, who joined the firm in 2003, used Ferris trading operations to prop up client David A. Dadante's Ponzi scheme, which cost Dadante's clients about $28 million. Glantz helped him carry out the scheme at the firm's office in Cleveland and perpetuated it after being moved to Baltimore.
The scheme collapsed in late 2005. Both Glantz and Dadante pleaded guilty to securities fraud charges. Glantz was sentenced to 33 months in prison; Dadante got a 13-year sentence.
Based on 23 witnesses and a raft of exhibits during the 13-day administrative proceeding, Murray concluded that Glantz was essentially left unsupervised for the two years he was employed at Ferris and that executives with a clear supervisory role over the broker did not carry out their responsibilities.
In December 2004, Urban recommended that Glantz be fired, but Akers insisted that Glantz be placed on special supervision, according to the opinion. Urban testified that if Akers would not accept his advice, special supervision was "probably the next best thing," according to the opinion.
Murray concluded that Urban could not turn to Robert Calvert, the firm's chief executive, because Calvert often deferred to Akers, who was characterized as the "most powerful person" at the firm.
Urban resigned from Ferris in March 2007.
"Urban was the only person in FBW management who tried to deal with Glantz, a problem he did not create and I find his actions, in these facts and circumstances, reasonable," Murray said.
In a separate settlement with the SEC, Ferris paid $500,000 in fines.
The SEC also fined Akers $75,000 and prohibited him from acting as a supervisor to brokers, dealers or investment advisers for a year. Patrick J. Vaughan, who was Ferris' director of retail sales, was fined $50,000, ordered to give up improper profits and banned from acting as a supervisor to brokers, dealers or investment advisers for six months.
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