All teams love having home court advantage, and the Securities and Exchange Commission (SEC) is no exception. The SEC’s Enforcement Division has posted an impressive winning percentage in cases heard by the agency’s in-house Administrative Law Judges (ALJ).
The division lost a recent case, however, as ALJ Carol Fox Foelak found that Equity Trust Company, a self-directed individual retirement account custodian, did not cause investor losses. The defeat for the agency occurred in the SEC’s first enforcement case against a passive IRA custodian.
The charges arose from the sales of securities to investors by two unrelated fraudsters who were subsequently convicted on criminal charges. Investors purchased securities from the two promoters and held them in self-directed IRA accounts for which Equity Trust served as custodian.
ALJ Foelak found that the SEC failed to prove that Equity Trust knew, or should have known, that its conduct would contribute to the promoters' violations. In dismissing SEC claims that Equity Trust ignored red flags indicating fraud, the judge concluded that the fact that the custodian knew that the issuer of the securities "was financially pressed and losing money" was not the same as knowing that the promoter was engaged in fraud. She also cited the SEC’s own staff guidance, in which the staff stated that “[s]elf-directed IRA custodians generally do not evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters.”
In the Matter of Equity Trust Co., Initial Decision Release No. 1030 (June 27, 2016).
Stay current with all administrative law judge decisions by using Bloomberg Law’s new ALJ Enforcement Tracker.
Read the full story here.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)