The former chief compliance officer (CCO) of a broker-dealer has agreed to SEC associational and penny stock bars. The SEC alleged that she failed to reasonably supervise her husband—the firm’s president and CEO—who misappropriated investor funds for personal use (In the Matter of Janet L. Waters, Release No. 34-75819, September 2, 2015).
Arnett Waters fraud. Arnett L. Waters was the president, CEO, and a registered representative at A.L. Waters Capital, LLC (Waters Capital), a broker-dealer registered with the SEC. The SEC filed an enforcement action against Arnett Waters in May 2012, alleging that from 2009 through April 2012, he misappropriated over $800,000 from Waters Capital customers who had been told their money would be invested in private investment funds. Instead, he used the money to pay his personal expenses. In October 2012, a criminal complaint was filed against Arnett Waters, which contained the same allegations cited by the SEC, in addition to allegations that he defrauded customers of his rare coin business out of $7.8 million and made misrepresentations about his use of customer funds to SEC staff. In November 2013, he pleaded guilty to 16 counts of securities fraud, mail fraud, money laundering, and obstruction of justice. Arnett Waters was sentenced to 17 years in prison in April 2013.
Failure to supervise. During the time Arnett Waters operated his fraudulent scheme, he was married to Janet L. Waters, who was Waters Capital’s CCO, as well as the designated supervisor over her husband’s day-to-day activities at the firm. According to the SEC, if Janet Waters had reasonably supervised her husband by reviewing his correspondence and the firm’s transaction reports, she could have detected that, despite what customers were being told, the firm had not made any of the investments as promised. By failing to follow the firm’s procedures that would have led to the detection of Arnett Water’s fraud, Janet Waters failed to reasonably supervise him in violation of Exchange Act Section 15(b)(4)(E), according to the SEC’s order instituting administrative proceedings.
To settle the SEC’s charges, Janet Waters agreed to associational and penny stock bars. The SEC did not impose a civil penalty due to her inability to pay. Janet Waters neither admitted nor denied the SEC’s findings.
This is Release No. 34-75819.