In-house lawyers beware—your exposure to potential supervisory liability may extend far beyond the confines of the legal department. In In the Matter of Theodore W. Urban, 2010 WL 3500928 (SEC Release No. 3-13655, Sept. 8, 2010), an SEC Administrative Law Judge held that an in-house lawyer at a broker-dealer with no direct supervisory authority over a retail financial adviser was, nonetheless, that financial adviser’s “supervisor” under the federal securities laws.
Although the ALJ ultimately found that the in-house lawyer’s supervision was “reasonable,” the fact that the ALJ concluded that the lawyer was a financial adviser’s supervisor is a disquieting development for all in-house lawyers at broker-dealers. Moreover, because failure to supervise liability can be asserted against investment advisers under Sections 203(e)(6) and 203(f) of the Investment Advisers Act of 1940, in-house lawyers at registered and unregistered investment funds could also be subject to this expansion of supervisory liability under the Urban holding.
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