The SEC case against a Morgan Stanley trader who, along with her supervisor, had allegedly concealed risky trades that led to millions in losses, featured a Commissioner's formal dissent (a rarity).  Interestingly, the dissent itself revealed a second surprise - a rarer rarity in the rather mundane world of SEC legal proceedings.  

SEC Allegations.   From October to December in 2009, Jennifer Kim and supervisor Larry Feinblum executed numerous securities trades that created risk positions far beyond the limits set by the firm.  To conceal the risk, the 2 traders entered swap orders into Morgan Stanley's risk management system - though they never intended to carry out the orders and canceled them immediately after entering them. The SEC inquiry noted "faux transaction" as a calculated trail of deception that allowed Ms. Kim and Mr. Feinblum to execute a very risky trading strategy.  Morgan Stanley made the discovery and unwound the unauthorized trading positions for a final lost of about $25mn.

SEC Sanctions.  In this proceeding, the SEC was ruling only on Jennifer Kim - and Larry Feinblum.  In finding Ms. Kim guilty of willfully circumventing appropriate risk controls, as well as misleading her supervisors, Ms. Kim was barred from the industry and fined $25K. 

Dissent.  Stiff penalties, yes, but Commissioner Luis Aguilar offered a written dissent, arguing that the penalties did not address her willful circumventing of best practices, which Aguilar deemed criminal:

I respectfully dissent from the Commission’s Order accepting the settlement offer of Jennifer Kim in this matter. As stated in the Order, Kim held four securities licenses, and managed her own trading account. There were 32 instances in a three‐month period where swap orders were entered, and then cancelled, for the purpose of evading Morgan Stanley’s internal risk limits. I believe Kim’s offer to settle to the Order based on a violation of Section 13(b)(5) of the Exchange Act is inadequate,and fails to address what is in my view the intentional nature of her conduct. The settlement should have included charging Kim with violations of the antifraud provisions.

C-I Note:  It's an interesting point that Aguilar makes, and may have an effect on future rulings. In light of the frequency of the misconduct - i.e., a pattern of violations - and the lengths to which Kim went to hide her maneuvers, Commissioner Aguilar felt that a punishment beyond the usual barring or suspension, along with a fine, was called for to truly set an example.

For further details, go to:  [SEC Ruling and Aguilar Dissent ]