SEC – Securities and Exchange Commission | Think Advisor | Melanie Waddell | October 25, 2019
Before leaving the SEC, Michael Cohn improperly accessed information about an investigation into GPB Capital, the DOJ says.
Former Securities and Exchange Commission enforcement staffer Michael Cohn has been indicted for stealing confidential information about a pending investigation to secure a job at private equity firm GPB Capital Holdings.
Cohn, the former managing director and chief compliance officer for GPB, was charged Wednesday by the U.S. Attorney’s Office for the Eastern District of New York with obstruction of justice, unauthorized computer access and unauthorized disclosure of confidential information.
Cohn was arraigned Wednesday morning before U.S. Circuit Judge Joseph F. Bianco and released on a $250,000 bond. Cohn, 59, faces up to 26 years in prison.
According to the charges, prior to leaving the SEC, Cohn accessed information on SEC servers relating to an Enforcement Division investigation into GPB.
“Cohn was not authorized to access this highly sensitive material, which included confidential information, privileged attorney-client work product and contacts with law enforcement and other regulatory agencies,” according to a statement from the Justice Department.
During discussions with GPB personnel about obtaining a job there, “Cohn advised them that he had inside information about the SEC’s investigation, and on several occasions he disclosed information to members of GPB’s senior management about that investigation,” the charges state.
The charges were announced by Richard Donoghue, U.S. attorney for the Eastern District of New York; William F. Sweeney Jr., assistant director-in-charge for the FBI’s New York Field Office; and Carl Hoecker, inspector general of the SEC.
“As alleged in the superseding indictment, the defendant abused the trust placed in him as an SEC employee, obstructing an active investigation,” Donoghue said in the statement. “No one gets a pass for breaching the security of government computer networks and misusing sensitive and confidential information for their own benefit.”
Cohn was a securities compliance examiner and industry specialist in the SEC’s Enforcement Division, where he assisted investigations into violations of securities laws.
In approximately October 2018, Cohn left the SEC to join GPB, a private equity firm based in Manhattan and Garden City, New York, that manages over $1.5 billion in assets.
This case exhibits “why there should be limits on the revolving door between the regulators and firms they are charged with regulating,” according to Cipperman Compliance Services.
An inherent conflict of interest exists “when a former regulator represents a firm being examined or investigated,” Cipperman stated.
Cipperman cited a 2013 report by The Project On Government Oversight (POGO) titled “Dangerous Liaisons: Revolving Door at SEC Creates Risk of Regulatory Capture,” which outlines the scope of the problem.
The POGO report argues that former SEC employees “routinely help corporations try to influence SEC rulemaking, counter the agency’s investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals, and win exemptions from federal law.”
“At the very least, we would recommend a 12-month cooling-off period before a private firm could hire a former regulator and an outright ban if the firm is currently under investigation,” Cipperman said.
Other GPB Woes
Attorneys at Peiffer Wolf and Meyer Wilson filed two complaints recently on behalf of senior citizens in Florida and Oregon who lost more than $1.5 million to financial advisors and brokers who they argue were “pulling down huge commissions on unsuitable investments in GPB funds.”
On Sept. 18, 2019, the law firm forecast an “avalanche” of retiree arbitration cases in the GPB scandal.
Joseph Peiffer, managing partner, said in a statement Thursday that “the charges filed Wednesday against Michael Cohn are particularly egregious, but they are only part of the story; the other shoe is going to drop very soon. When that happens, investors will have a very clear picture of just how bad things were at GPB.”
David Meyer, managing partner, added: “We are going to see to it that all the facts come out here very soon. We are talking about nearly two billion dollars and thousands of victims. If you invested in any of the GPB funds, you should contact an experienced securities attorney today.”
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