A former U.S. Securities and Exchange Commission employee has been charged with making improper trades in options and other securities and concealing his trading from the SEC’s ethics office.
SEC employees are subject to strict rules designed to prevent even the appearance that they may use their public office for private gain. Among other things, they cannot trade in options and are required to disclose their securities holdings and transactions to the agency’s ethics office in annual filings.
According to the SEC, however, David Humphrey, 60, ignored those rules while employed as a staff accountant for the commission and later as a branch chief in the Division of Corporation Finance between 2001 and 2014.
The SEC alleged Tuesday in a civil complaint that Humphrey devised and executed an “options trading strategy” under which, using his SEC computer, he traded options more than 100 times on behalf of himself, his mother and a childhood friend.
“Humphrey never sought pre-clearance [from the ethics office] for his prohibited options trades and he filed forms that falsely represented his securities holdings,” Gerald W. Hodgkins, associate director of the SEC’s Division of Enforcement, said in a news release.
To settle the SEC’s charges, Humphrey agreed to pay $51,917 in disgorgement of profits he made on the improper trades plus $4,774 in interest and a $51,917 penalty. In a related criminal case, he pleaded guilty Tuesday to making false statements in financial disclosure reports.
Humphrey began working for the SEC in 1998 and, according to the commission, received “extensive training” in its ethics rules. But starting in 2001, he allegedly conducted an “improper trading strategy using his SEC computer during business hours” that involved writing uncovered options against an index and occasionally an individual stock.
“Humphrey would receive proceeds, or ‘the premium,’ for selling the option with the hope that the option would expire worthless and Humphrey would retain the premium,” the SEC said.
On one occasion, Humphrey also allegedly sold put options on shares of Citigroup, violating an SEC rule barring trades in the securities of an entity directly regulated by the agency.