The SEC didn’t have to look far to find someone to charge with improper trading and disclosure failures, given that they already had a forwarding address for him and that most of the trading took place on an F Street headquarters computer. David R. Humphrey, a former staff accountant and branch chief with the Commission, agreed to pay more than $108,000 to settle charges of improper trading while employed by the SEC. He also consented to a permanent bar from practicing before the SEC as an accountant. The settlement is subject to final approval by the U.S. District Court for the District of Columbia.
According to the Enforcement Division, Humphrey engaged in trading for his own account in violation of the ethics rules from approximately 2001 until late 2009, and then again from late 2012 through his departure from the Commission in 2014. He actively concealed his personal trading from the SEC’s ethics office, and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation. As alleged, Humphrey conducted most of the improper trading from his SEC office computer during business hours.
The SEC complaint described a complex derivatives trading scheme, in which Humphrey wrote uncovered options against indexes and individual stocks. He also sold options in a utilities index fund and options on the shares of individual issuers, including options on shares of SEC-regulated issuers. He allegedly engaged in more than 100 options transactions between 2005 and 2014, and also used his mother’s brokerage account for improper transactions. Humphrey did not pre-clear any of his options trading or report any of his trades or holdings to the SEC. In addition, as part of the scheme, Humphrey provided misleading information to broker-dealers by concealing his SEC employment and providing false information in connection with a friend's trading activities.
The SEC’s Office of the Inspector General learned of Humphrey’s activities in 2014. During a voluntary interview with OIG agents in May 2014, Humphrey acknowledged that he understood the Commission's ethics, but, as stated in the complaint, "in keeping with his prior efforts to conceal his improper trading, he falsely claimed that he had not traded in options or in his mother's brokerage account while employed at the SEC."
The SEC has an extensive set of ethics rules regarding securities transactions by employees that are intended to prevent the use of public office for private gain. The ethics rules specifically prohibit trading in options or derivatives, and in the securities of regulated entities, such as broker-dealers. The rules also require staffers to disclose their securities holdings and transactions to the agency’s ethics office in annual filings, to obtain pre-clearance for specified permitted transactions, and to comply with holding period restrictions.
In a parallel action, the Department of Justice announced that Humphrey pleaded guilty to criminal charges stemming from his false disclosure form filings.
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