(Adds background, details about Humphrey's employment at SEC)
By Sarah N. Lynch
WASHINGTON May 3 A former accountant at the
U.S. Securities and Exchange Commission (SEC) is expected to
settle parallel criminal and civil charges, after he was caught
illegally trading options while working at the agency, according
to multiple sources familiar with the matter.
The charges against David R. Humphrey, a 16-year SEC
veteran, represent a rare instance of the SEC taking enforcement
action against one of its own employees, and constitute an
unusual violation of the SEC's ethics rules.
The SEC has very strict securities trading rules for its
employees as many of them have access to highly sensitive, non
public and potentially market-moving information.
Humphrey was charged with one criminal count of making a
false written statement, after repeatedly filing false
government ethics forms that failed to disclose certain
investments, according to a federal court filing.
Sources familiar with the case said he is expected to plead
guilty to the criminal charge, and settle related civil SEC
charges, after he was caught trading options - many on his SEC
work computer - over the course of more than a decade for
himself, as well as for his mother and a friend.
He will also pay more than $100,000 in penalties and
ill-gotten profits to settle the SEC's civil case, and will be
permanently barred from practicing as an accountant before the
SEC, the sources added.
The sources provided the information about the pending cases
to Reuters anonymously, because the SEC charges and the plea
deal have not been made public.
Humphrey, who resides in Arizona and is no longer employed
at the SEC, referred questions about the case to his attorney
Ken Lench of Kirkland & Ellis.
Lench declined to comment.
SEC employees are banned from holding stock in companies
directly regulated by the SEC, such as banks, and they are also
required to get clearance from the agency's ethics attorney
prior to trading. Trading in options, or other financial
instruments that derive value from securities, is also banned
for all SEC employees.
In this case, Humphreys is alleged to have not only traded
options and failed to report them, but also failed to seek
clearance before making trades, among other things.
An SEC spokesman did not immediately respond to a request
Humphrey served from 2004-2014 as a middle-level manager at
the SEC's Corporation Finance Division, according to the court
filing. While employees there are likely to have access to
material, non-public information, Humphrey is not expected to be
accused of using any such information to inform his options
trading strategy, the sources said.
SEC staffers have been prosecuted for various ethics
violations in the past, but it is not common.
In 2013, the SEC's inspector general and federal prosecutors
in New York announced criminal charges against Steven Gilchrist,
a former compliance examiner. He was accused of making false
statements about stock holdings by telling the regulator he had
divested his bank stocks, when in truth he transferred them to a
joint account held with his mother.
He later reached a deferred prosecution agreement.
Another former SEC examiner, Eugenia Cantiello, also reached
a deferred prosecution agreement in 2015 for making false
statements about her and her husband's prohibited stock
However, in both cases, the SEC's enforcement staff did not
bring parallel civil charges.
Typically, internal misconduct is investigated by agents at
the inspector general's office and referred to federal
prosecutors if warranted. In this unusual case, both the agents
and the SEC enforcement staff worked in tandem.
The SEC has brought civil charges against former SEC
employees at least two other times, though in both cases the
underlying conduct occurred after those staffers departed the
Public records show that Humphrey worked for a period of
time reviewing corporate filings by publicly-traded food
companies, such as the Dole Food Company Inc and car
manufacturers including General Motors Co.
The Corporation Finance Division is tasked with reviewing
public financial filings for compliance with accounting and
other SEC disclosure rules.
His wife Marie Humphrey was also previously employed at the
SEC, according to public records and people familiar with the
While government ethics rules governing prohibited holdings
generally apply to both spouses, his wife is not expected to be
charged in the case or accused of any wrongdoing.
Reuters was unable to reach her for comment.
(Reporting by Sarah N. Lynch; editing by Andrew Hay)