A federal employee tasked with keeping the securities industry honest was arrested Tuesday and charged with making false statements about his financial holdings.
Steven Gilchrist, a longtime employee with the Securities and Exchange Commission in New York, allegedly held stock he was not allowed to own and repeatedly lied about it, according to a complaint filed by the U.S. Attorney’s office in Manhattan.
As a compliance officer, Gilchrist has examined broker dealers, investment advisers and other entities for the SEC since 1996 to assess whether they are adhering to federal securities law. But prosecutors say he ran afoul of the agency’s internal ethics rules, which bar employees from buying or holding stock in companies the SEC regulates.
“We will not tolerate abuses of trust and violations of law by individuals tasked with safeguarding our markets,” Preet Bharara, the U.S. attorney for the Southern District of New York, said in a statement.
Prosecutors allege that Gilchrist lied on three occasions about the shares he owned in six companies, including Bank of America, Citigroup and Morgan Stanley.
In one instance, an SEC ethics officer told Gilchrist that he had to divest of his stock in those three firms. He initially resisted, explaining that he had inherited the securities from his father and did “not think of them as an investment,” according to the complaint.
When the ethics office insisted that he dispose of the stock, Gilchrist sent an e-mail in January 2012 saying that he had done so. But prosecutors allege that he instead transferred the shares to a joint account he had opened with his mother and did not report the holdings.
The criminal complaint, filed in federal court in Manhattan, also accuses Gilchrist of buying JPMorgan Chase stock in May 2012 without reporting the transaction to the SEC, or gaining the agency’s approval, as required by the agency’s internal rules.
Laura Miranda, Gilchrist’s attorney, declined to comment. Gilchrist faces 15 years in prison if found guilty. He appeared in court Tuesday and was released on his own recognizance.
The U.S. Attorney’s Office investigated the case with the SEC’s inspector general, Carl Hoecker. There’s no indication that the misconduct Gilchrist allegedly engaged in is widespread at the SEC or its New York office, a person familiar with the inquiry said.
“We are very disappointed that an employee allegedly made false statements to conceal prohibited holdings after being told by our Ethics office to divest,” SEC spokesman John Nester said in a statement.