Friday, August 07, 2015

SEC ALJ Declines to Impose Sanctions Against ex-Wells Fargo Compliance Officer

By R. Jason Howard, J.D.

SEC Administrative Law Judge, Cameron Elliot, has found that former Wells Fargo compliance officer, Judy K. Wolf (Wolf), aided and abetted and acted with scienter in causing Wells Fargo’s violations of the Exchange Act but the factors that weighed in favor of sanctions for her actions were outweighed by the public interest factors of egregiousness, degree of harm, and deterrence. Accordingly, the ALJ declined to impose any sanctions (In the Matter of Judy K. Wolf, August 5, 2015).

Background. Wolf worked in Wells Fargo’s compliance department and in September 2010, Wolf reviewed the trading of Waldyr Da Silva Prado Neto (Prado), a Wells Fargo registered representative. She then generated a document memorializing her review. Prado was later sued by the Commission for insider trading. In December 2012, Wolf altered her document to make it appear that her September 2010 review was more thorough than it actually was and the altered document was produced to Commission staff without mention of its alteration.

ALJ proceeding. The discussion in the ALJ proceeding acknowledged that Wolf acted with scienter because, based on her professional experience, she must have known that it was improper to alter compliance records. Moreover, although Wolf conceded at the hearing that the falsification of records was wrong, Wolf maintained that she was not culpable because she did not alter the documents for purposes of misleading anyone or for purposes of falsifying documentation. The ALJ continued, saying that while Wolf “sincerely regrets the consequences resulting from her alteration of the Log, and the profound effect it has had on her life, she does not recognize the wrongful nature of her misconduct.”

On the other hand, explained the ALJ, Wolf’s alteration of the log was an isolated event. She provided assurances against future violations, explaining that she had no desire to work in the securities industry again; she doubted she would even be able to because of the allegations in the proceeding and at 62 she is functionally retired. For those reasons, the ALJ said that “Wolf is not, and is unlikely to ever be, in an occupation presenting opportunities for committing securities violations.”

Conclusion. While the ALJ said he did not condone Wolf’s conduct or her deceit in attempting to cover it up, he reiterated that Wolf’s violation was not egregious and it caused no proven harm to investors or the marketplace and that while books and records violations can be egregious, no documents were destroyed and there was no evidence that Wolf’s misconduct made any material difference to the investigation of Prado.

Finally, the ALJ said that “neither the Division nor the Commission as a whole should tolerate falsified records or knowingly false testimony, and the Division was quite right to at least investigate Wolf. But now that the evidence has been fully aired, it is clear that sanctioning Wolf in any fashion would be overkill. Accordingly, no sanction will be imposed.”

The case is No. 3-16195.

No comments: