CCO Under Fire for Supervisory Failures in Insider Trading Scheme

Thomas Meade (“Meade”), the Chief Compliance Officer (“CCO”) of Denver- based Private Capital Management, Inc. (“PCM, Inc.”), is facing charges stemming from his lack of proper supervision and failure to prevent, detect or respond to an internal insider trading scheme in Mariner Energy Inc. (“Mariner”).

In 2010, PCM Inc.’s trader, Drew Peterson, his father [H. Clayton Peterson], who was a board member of Mariner, and hedge fund manager Drew Brownstein engaged in insider trading.

All three pleaded guilty and were convicted in 2011. The SEC’s Office of Compliance and Examinations (“OCIE”) also proceeded with a cause examination of PCM “out of concerns that Peterson’s trading and dissemination of material, non-public information had gone undetected.

On June 11, 2014, SEC cease-and-desist order against Meade, the SEC contends that Meade not only had a biased perspective on insider trading but also failed to provide adequate supervision of employee transactions after the insider trading was detected.

The SEC found that because Meade personally knew Peterson’s father’s role at Mariner and the risk of misuse of material non-public information by his son, he should have tailored PCM Inc.’s existing Policies and Procedures to specifically address these risks. Meade also failed to adequately supervise employee personal trading, maintain restricted stock lists, and conduct an internal investigation, per the firm’s policies and procedures. Additionally, Meade “overly relied on employees to self-report violations and failed to annually assess the adequacy or effectiveness of PCM, Inc.’s Policies and Procedures that were in place.

This insufficient supervision prompted a 2011 SEC provision that warned Meade to more accurately review transactions for the firm – a warning that was not heeded by Meade, and eventually led to the 2014 cease-and-desist order, a $100,000 fine, and Meade being barred from compliance and supervisory roles.

It is of paramount importance that CCOs within the financial industry take proactive steps to assess the effectiveness of their insider trading controls.

For further information on this and other related subjects, please contact us at (619) 278-0020 to schedule a consultation.

GENERAL DISCLAIMER: Information contained within this blog does not create a business-client relationship, and none of the content of this blog can be deemed to be consultive business advice.


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