A former Wheat First broker who blew the whistle on alleged sales practice violations in the firms Washington, D.C., office claims in a court filing that the FBI is now investigating the SECs handling of the Wheat investigation.
The broker, Ronald L. Brown, now with Capitol Securities Management in McLean, Va., and his attorney Randall Steinmeyer of Reinhardt & Anderson in St. Paul, Minn., also complained in writing to SEC Commissioner Laura Unger that the SEC is harassing them.
The FBI revelation was made in a Philadelphia federal court filing July 1. Browns filing was a response to a June SEC application with the court asking for enforcement of two subpoenas the agency issued to Brown, whose original complaint triggered a December 1996 SEC examination of the Wheat First office. The subpoenas ask for Browns testimony and production of documents in his possession.
In its court filings with the U.S. District Court for the Eastern District of Pennsylvania, the SEC claims Brown has engaged in tactics intended to delay and avoid compliance with the subpoenas.
But Brown, in response, contends the subpoenas were issued in bad faith to quell pressure from the media and other government entities and are simply an attempt to cover up a botched SEC investigation of Wheat First.
... The FBI and the FDIC are investigating Wheat First and the SEC for illegal acts, Browns response reads. The SEC now seeks to use the judicial process as a vehicle for its continued vendetta against Mr. Brown and to protect its Chairman.
Brown asserts he was contacted by the FBI and by the inspector general of the FDIC, and told by both agencies that they were investigating the SECs handling of an examination of Mr. Browns former employer, Wheat First, and [SEC Chairman] Arthur Levitts acceptance of value, from Wheat First.
According to Brown and one press account last summer, Levitt and retired Wheat First Chairman John McElroy had one or more contacts about the time the Wheat investigation started.
As a result, Wheat First apparently agreed to sponsor a public town hall meeting in Richmond, Va., the firms headquarters, on April 21, 1997.
The SEC would not comment on the alleged contact between McElroy and Levitt.
The FBI could not confirm the investigation by press time.
Brown says another outcome of the McElroy-Levitt contact was that the investigation of his office was quashed. He claims the Wheat branch was told in early February 1997 that there would be no action taken against the firm. Brown was fired from Wheat First later that month.
An SEC spokesperson, however, says the investigation was never closed and remains open to this day.
Wheat First, in response to a suit filed against it by Brown, claims that SEC staff informed Wheat that the examination did not reveal any securities law violations.
Separately, Brown wrote to the Justice Department on Jan. 28 of this year and to FBI Director Louis Freeh on Feb. 4. Both letters asked that Levitt be investigated for possible violations of government ethics laws. Brown says the FBI inquiry is a result of his complaint to the bureau. The Justice Department eventually declined to look into the matter.
Meanwhile, Steinmeyer and Brown claim the SEC may be harassing them. Steinmeyer says one of the principals of his firm, Jeffrey Anderson, received a threatening phone call from then SEC enforcement chief William McLucas on Thursday, Feb. 5--one week after the Justice Department letter was mailed.
... To put it as gently as possible, [McLucas] expressed his great displeasure that we had written to the Justice Department, Steinmeyer says in a lengthy complaint letter sent June 26, 1998, to Unger. McLucas wanted the Justice Department letter withdrawn, Steinmeyer claims, and was turned down.
The following Monday, Feb. 9, SEC examiners showed up unannounced in the Capitol Securities office where Brown works, according to Steinmeyer and Brown, and remained there for a week.
Steinmeyer further alleges that then SEC general counsel Richard Walker, who has since taken McLucas place as enforcement chief, followed up with another phone call to Anderson on Feb. 19.
In his telephone call, Walker ... did not display the same vicious temperament as McLucas, Steinmeyer claims in his letter to Unger. Walker did, however, ask Anderson what our firm was going to do about the letter, Steinmeyer claims. Walker stressed ... that Walker had a client--Arthur Levitt--who was unhappy about the letter to the Justice Department and hoped that our firm would do something responsive about the letter.
RRs calls to Anderson were not returned.
Meanwhile, on June 29, two days prior to Browns deadline for responding to the SECs recent court application, SEC examiners appeared unannounced in another Capitol Securities branch, according to Brown and Steinmeyer.
I have no confirmatory evidence [the audits were] done in retaliation, Steinmeyer says. It is suspicious.
Joe Jianos, a principal at Capitol, confirms the examinations. Both of the SEC audits covered routine investment advisory activities, Jianos says. The latest one involved an independent contractor affiliated with the firm. The timing of the Feb. 9 visit was very strange, he says, but whether it was coincidental with Browns court battle with the SEC, I dont know, Jianos says. He says the last visit his firm received from the SEC was about five years ago.
The SEC would not comment on the audits.
Calls to Walker were referred to an SEC spokesperson who declined comment. McLucas, now at Wilmer Cutler & Pickering, a law firm in Washington, D.C., also refused to comment.
The documents filed this June with the court by SEC attorneys claim that there appears to be evidence of wrongdoing at Browns former branch, and that his testimony is critical to a thorough investigation as are any documents the broker may possess. The SEC says Brown indicated he had specific information about individuals at the branch as well as about the broader issues of supervision at the office, in general. The agency claims, Details relating to the substance of [office] discussions, Browns impressions of these discussions, as well as any activities that he witnessed, are facts solely within his personal knowledge.
No explanation is given in the agencys court filings as to why SEC examiners failed to obtain this information from Brown when they investigated the branch in 1996. Although the filings contain numerous key dates, the agency did not mention the date Brown first came forth--Nov. 18, 1996. A full year passed before the SEC first contacted Brown asking for his in-person testimony, which the agency now says it must have.
An SEC spokesperson could not explain the one-year delay, but notes that agency investigators spoke with Brown on the phone several times before beginning the audit.
In addition to his bad faith argument against the SECs subpoenas, Brown has argued that ill health has delayed his testimony. At a hearing July 9, the district court ordered Brown to produce a sealed letter from his physician stating when he would be available to testify. The court further ordered that this document be kept confidential--viewed only by certain SEC officials seeking to enforce the subpoenas. Brown has stated that he likely would be able to testify by September or October.