## Facts

- Theodore W. Urban served at Ferris, Baker Watts, Inc. (FBW), a registered broker-dealer and investment adviser, as General Counsel, Executive Vice President, and a director, and sat on certain senior committees.
- FBW registered representative Stephen C. Glantz engaged in fraudulent sales practices, including misconduct involving microcap securities, unauthorized trading, and excessive commissions.
- The SEC instituted an administrative proceeding alleging Urban failed reasonably to supervise Glantz with a view to preventing violations of Securities Act § 17(a), Exchange Act § 10(b), and Rule 10b-5.
- Evidence showed Glantz’s day-to-day supervision and employment discipline rested with business-line managers (e.g., retail sales and branch management), not with Legal/Compliance.
- Urban learned of misconduct indicators through internal reviews and customer complaints and directed compliance staff to investigate Glantz’s activities and accounts.
- Urban repeatedly urged senior management to terminate Glantz or impose heightened supervision, but business leadership retained Glantz.
- Urban escalated concerns within the firm and communicated with regulators regarding aspects of the matter.

## Issues

1. Whether Urban was a “supervisor” of Glantz under Exchange Act § 15(b)(4)(E) such that Glantz was “subject to his supervision.”
2. If Urban was a supervisor, whether Urban “failed reasonably to supervise” Glantz with a view to preventing securities-law violations.

## Decision

- The Administrative Law Judge dismissed the proceeding.
- The ALJ found the SEC did not prove Urban was a “supervisor” of Glantz for purposes of Exchange Act § 15(b)(4)(E).
- Because supervisory status was not established, the ALJ did not impose sanctions for failure to supervise.
- On Commission review, the Commissioners split evenly, resulting in dismissal and leaving the ALJ’s outcome in place without a controlling Commission opinion.

## Legal Principles

- Failure-to-supervise liability under Exchange Act § 15(b)(4)(E) requires proof that the alleged violator was “subject to” the respondent’s supervision.
- Supervisory status is determined functionally, focusing on actual authority and responsibility over the person’s conduct, not job title, seniority, or influence.
- Legal and compliance personnel who investigate, advise, and escalate concerns are not supervisors absent line authority to control day-to-day activities or impose discipline over the employee at issue.
- Evidence that a respondent identified warning signs, initiated compliance investigations, and sought remedial steps may weigh against characterizing the conduct as unreasonable supervision where the respondent lacked control over business-line decisions.

## Conclusion

The ALJ dismissed the SEC’s failure-to-supervise claim against FBW’s general counsel because the record showed business-line management—not Urban—held the power to direct and discipline the broker, and Urban’s actions reflected escalation and compliance efforts rather than supervisory control over the misconduct.


In re Theodore W. Urban, Exchange Act Release No. 62630, Initial Decision Release No. 402 (SEC Sept. 8, 2010)