SEF Central 2024: Keynote Q&A Discussion with Tina Diamantopoulos

A transcript of Margaret Nelson’s interview of SEC Chicago Regional Office Director Tina Diamantopolous from last week’s Securities Enforcement Forum Central 2024 follows.

You can find the video at Docket Media’s YouTube channel here, and the full conference agenda here.

00:00 - 00:41

Bruce Carton: Really excited for our keynote Q&A discussion with Tina Diamantopoulos. Tina was named director of the Chicago Regional Office in May of 2024. She's a 30-year veteran of the SEC and has held leadership roles in both the Enforcement Division and the Division of Examinations, including Associate Director for the Regional Broker Dealer Examination Program, supervising teams that examine broker dealers, exchanges, transfer agents, and others. She earned her law degree from Northwestern Pritzker School of Law, I guess that's around the corner somewhere, And her bachelor's degree from Marquette. Tina, really thrilled to have you with us. Thank you. And . . .

00:41 - 01:16

Bruce Carton: moderating today, Jim Lundy, who I think invited all of you, as far as I can tell, to come. Jim Lundy had a last minute issue that he could not make it, but we are really grateful to be joined by his partner, Margaret Nelson. Margaret's a partner at Foley & Lardner located in Chicago. Prior to joining Foley, she spent five years as assistant general counsel at a large accounting firm. And she spent nine years as senior counsel in the SEC's Chicago Regional Office. Margaret, thank you so much for participating and take it away.

01:17 – 02:08

Margaret Nelson: Well, thanks for all joining. Thanks for joining us all this afternoon and thanks to Tina for taking time to sit down and answer some questions and also I'd like to also give a shout out to Jim Lundy my colleague for asking me to fill in for him today. I'll try to do him proud. But Tina, we have a series of questions for you and we appreciate you working through them with us. The first thing, You're obviously pretty new to the regional directorship role for the Chicago Regional Office. But you are not new to the SEC or to the Chicago Regional Office by any means. So can you share with us the various roles you've had at the CHRO as well as the SEC. You know, pretty much how did you get here?

02:08 - 02:41

Tina Diamantopolous: Yes, sure. So first of all, good afternoon, everyone. I hope you can hear me. Thank you, Margaret, Bruce, Jim Lundy, and SEC Docket for inviting me and our colleagues to be here today. We always appreciate the opportunity to be able to see and speak with you and fortunately because this event was in Chicago, we were able to be here in person, which is not what's happening for a lot of our events recently. So thank you for that. And before I get started at all, of course, I have to give the standard disclosure, which is that my . . .

02:41 - 03:22

Tina Diamantopolous: presentation and remarks are provided in my official capacity as the regional director of the Chicago Regional Office of the SEC, but do not reflect the views of the commission, the commissioners, or any members of the staff. And so truly it's nice to be here, appreciate the answer. It is sad to think that it has been 30 years. I was thinking I should make some joke about having started at the SEC as a child. But we all know that isn't true. So I was, though, fortunate to learn about the SEC as an intern during law school and . . .

03:22 - 03:59

Tina Diamantopolous: to be able to start my career there. I really feel like it's been a privilege to be able to serve at the commission, and it's been really a privilege to be able to serve in all of the different roles that I've been fortunate enough to have. So I began as an enforcement staff attorney and then about five years later was promoted to be an enforcement branch chief, which is a supervisory level that at the time supervised a group of attorneys. After 10 years in the Division of Enforcement, I moved over to our exams program in the . . .

03:59 - 04:41

Tina Diamantopolous: Chicago office and specifically the broker-dealer examination program. I was there as a senior special counsel of examinations, which allowed me to work on examinations as well as enforcement referrals and work with the industry a bit, do some public speaking. And after 6 years of that, the position of council to the regional director was created. You heard earlier today from Andrew Shoenthal, who's our current counsel to the regional director. It was a great position to be in. It allowed me to utilize experience I had from both the enforcement group, as well as the examination group, and to . . .

04:41 - 05:28

Tina Diamantopolous: further develop capabilities and leading priorities of the office in terms of initiatives, and as well as operations and management. And I am very grateful in 12 years that I held that position. I served four really tremendous regional directors. I learned a lot about both the work of the SEC, but honestly, quite frankly, how to be a good lawyer as well. And so that enabled me in 2022 when there was a leadership position open back in our broker-dealer examination program to be selected for that as the associate regional director. Our exams and enforcement work are really important . . .

05:28 - 06:00

Tina Diamantopolous: and often leading in the commission and you'll hear me talk about some of those examples in a bit. But that was another position that truly lucky and very happy to have and that got to work again with exams people, personnel, you know, work on priorities until this position in May. So, yeah, it's been a long ride, but of course, as I've seen a number of you alums in the audience, none of us have aged at all. . . .

06:01 - 06:29

Margaret Nelson: Not at all. So, it sounds like you've had a wide and varied experience within the regional office, pretty much having a position in all areas of the office. Are there any specific cases, exams, or matters that you think had a particular impact on you in terms of your view towards your current role as regional director?

06:30 - 07:15

Tina Diamantopolous: Sure, so it's probably you can imagine with 30 years of experience there's really several cases that I think about often and have shaped the thinking that I bring to the position and you know they really range from the common Ponzi offering fraud where you're getting the calls of people not able to make their mortgage payments or pay for their life-saving medication to the sophisticated executives who basically loot their company and cheat their shareholders to the fun and challenging insider trading cases, to the complicated financial frauds, as well as all of our regulatory disclosure and other types . . .

07:15 - 07:52

Tina Diamantopolous: of cases. But I was gonna focus on an insider trading case I worked on a few years ago. It's sort of similar to the Panuwat case, which I know has been of discussion both today and recently as well. So the reason I'm gonna use this example is basically it's something that seemed very new and novel at the time, but as most things and most of the cases that we work on is not so much new or novel anymore. I'll go into a little bit of detail in order to further explain that a little bit. So the . . .

07:52 - 08:45

Tina Diamantopolous: case involved someone who worked on the due diligence team of a major healthcare company. And the individual purchased call options and when the announcement of the acquisition of this major health care company acquiring a smaller private company became public, profited significantly. So when we received the information relating to this trade, you know, common theory would tell you that first when there's an acquisition the acquiring company stock is usually going to go down. There's going to be expenses associated with the acquisition uncertainties and the target company stock will go up and so traditional cases would notice that . . .

08:45 - 09:24

Tina Diamantopolous: the trader would trade in the acquired company or the target company. We did not have that here. But one of the reasons we did not have that here was that the, as I mentioned, target company wasn't publicly traded for one. And second, you know, we had a lot of evidence that the individual defendant was in the very prime position to know exactly what this acquisition was going to mean for his company and his employer, and he also had a duty of confidentiality to his employer. So another reason I like to use this case as an example . . .

09:24 - 10:11

Tina Diamantopolous: is it required us to work with our Office of Economic Research and Analysis at the time, which is now a division called DERA, or Division of Economic Research and Analysis. There are a lot of experts that know a lot about economy, the market, strategies, they're just really a great group to work with. So we worked together to be able to prove that this was indeed material non-public information. And when we filed our case, the defendant who had asserted his Fifth Amendment privilege filed a motion to dismiss, amongst other claims, for not having used the information, even . . .

10:11 - 10:47

Tina Diamantopolous: if we could prove that it was in his possession. Again, this is fairly more common now, but at the time, it was one of the first cases that we, the SEC, were going to be alleging that a defendant may not necessarily be able to separate possession and use. And so it gave me the opportunity to work with the heads of our trial unit in the Washington office and prepare for this oral argument. And of course it wasn't going to be just a plain oral argument when the clerk of the chief judge of the district who we . . .

10:47 - 11:26

Tina Diamantopolous: were in front of for this case called to say, the location's going to be a law school auditorium because it's going to be the chief judge's argument of the year. So, a little bit memorable in preparing for that. We had a large audience and I'm happy to say we succeeded on that argument. We succeeded ultimately on the case and also the local U.S. Attorney's Office also brought an action against the individual and was successful. And so, you know, earlier I've heard some of the panels you've been discussing, you know, duty, misappropriation, the challenge of insider trading . . .

11:26 - 12:03

Tina Diamantopolous: cases. This example really for me allowed me the opportunity to work with some of the best experts at the Commission to succeed in pushing the envelope of what was traditionally thought cut and dry. And also, just quite honestly, some of these cases, as I think it was Dan Hayes mentioned earlier, it's what everyone's always sort of asking you about or talking about, and I went on after this case to work on more insider trading cases, and on some of them even set some precedent. So I would raise that example. . . .

12:03 - 12:34

Margaret Nelson: Yeah, that's a great one. And I think it's also a great example of how the Chicago office fits into the larger picture of the SEC as a whole, working with the different divisions, which leads us nicely to our next question. So we know the SEC is not a monolith, right? It's more than the sum of its parts. There's many divisions, offices, units. How do you see the Chicago Regional Office fitting within the SEC as a whole?

12:35 - 13:14

Tina Diamantopolous: Yes, so we are the second largest regional office behind New York, and we cover a nine-state area which is the largest area by a regional office, and I'm gonna look at my notes even though I know the states because I'll mention them alphabetically. Kentucky, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin. And the other thing about our office that has changed a little bit over the years and that I think is significant is we are now up to 330 employees in the Chicago office. We have dozens of employees who are from some of the . . .

13:14 - 14:03

Tina Diamantopolous: other divisions from our home office. We have other groups that are part of our exams division, such as our Office of Clearing and Settlement, our Technology Controls Program, some of the policy making decisions like investment management and market regulation, as well as some people from our Division of Enforcement and DERA. So what does that do? That really allows us, especially I think during the current time, where with what's been happening in our environment and the distance and being able to regulate and in practice to actually walk down the hall and work with people and talk to . . .

14:03 - 14:47

Tina Diamantopolous: people and pick someone's brain who, say for example, is down the hall from the Office of the General Counsel or down the hall from DERA. Specifically for the Chicago office, Our enforcement program now has about 95 people and our exams program has about 145. 45 in the broker-dealer program and about a hundred in our investment advisor and investment company program. And another thing that is pretty significant is that we have a really dynamic market here in Chicago and in the surrounding area. And while in New York, some of the major brokerage houses and . . .

14:47 - 15:39

Tina Diamantopolous: wire houses are located there. We have some key financial intermediaries here as well with the Options Clearing Corp, with the Chicago Board of Options Exchange. We also have the largest number of branch offices and registered representatives in the country located within our region. So specifically, we have 2,500 registered investment advisors, over 5,800 private funds, 170 registered investment companies, as well as fund administrators, municipal advisors, and transfer agents. And so I think that gives you a sense of how retail focused also our region is. And because of that, I think many of you have probably . . .

15:39 - 16:02

Tina Diamantopolous: seen, you know, we tend to lead both on the exams and the enforcement side in terms of initiatives or sweeps or bringing actions that are first of their kind. So with all that, I feel like Chicago really plays a key pivotal role in the work of the Commission.

16:05 - 16:45

Margaret Nelson: And thanks for that. I think that's one of the reasons why it's great to have this event in Chicago, to have it focused on SEC enforcement in particular, because It is an important area in terms of enforcement and financial services all in. So I mean I think you know this Tina, but a large portion of our audience here comes from the defense bar specific to SEC enforcement and I am sure everybody in the audience would like to hear more about recent enforcement matters especially originating out of the Chicago Regional Office that you think are particularly impactful.

16:45 - 17:24

Tina Diamantopolous: Yeah absolutely and of course there's going to be several I'm not going to mention. We don't have endless amount of time, but just to give sort of a sample of some of the actions and many of them will have been based on exam program referrals as well, which is also something that is very common for the Chicago office. We're very fortunate to have a very good collaborative relationship with our examination program. And there's a lot of positive synergy, both from the exam program and the enforced program, as well as vice versa. So to just name a few, Options Clearing

17:24 - 18:13

Tina Diamantopolous: Company, the Chicago office helped bring a settled administrative cease and desist proceeding against OCC based on their failure to implement and comply with stress testing and clearing fund methodology rule for almost two years. Their failure to implement and comply with their own rule led to the underfunding of the clearing fund by nearly $600 million. And that was during certain times between October 2019 and May 2021. We also found that they failed to comply with their margin methodology, margin policy, stress testing, clearing fund methodology, and that was related to specific runway risk and holiday margin. They also . . .

18:13 - 19:01

Tina Diamantopolous: were found to violate regulation SCI by failing to provide timely notification of these issues to the Commission and pursuant to the order they were ordered to pay 17 million dollars penalty and to comply with undertakings which addressed its need to remediate certain deficiencies by deadlines that we imposed in the order. And the team also coordinated with the CFTC, which instituted its own administrative order based on the same facts and imposed a $5,000,000 settlement. Another case that was more recent was this past May is the BF Borgers case. On May 3rd specifically we charged audit firm . . .

19:01 - 19:52

Tina Diamantopolous: BF Borgers CPA PC and its owner Benjamin Borgers with deliberate and systemic failures to comply with the PCAOB's standards and its audits and reviews incorporated in more than 1,500 SEC filings from January of ’21 through June of ’23. And we also charged the respondents with falsely representing to their clients that the firm's work would comply with PCAOB standards, fabricating audit documentation to make it appear that the firm's work did comply with PCAOB standards, and falsely stating an audit reports included in more than 500 public company SEC filings that the firm's audits complied with the PCAOB . . .

19:52 - 20:42

Tina Diamantopolous: standards. And so to settle these charges, BF Borgers agreed to pay a $12 million civil penalty, and Benjamin Borgers agreed to pay a $2,000,000 civil penalty. Both respondents also agreed to permanent suspensions from appearing and practicing before the Commission as accountants and that was effective immediately. Stepping back to last year but equally important we instituted settled AP action against Wells Fargo Clearing Services, LLC, and Wells Fargo Advisors Financial Network, LLC, for excessive advisory fees. LLC for excessive advisory fees. From at least 2002 through December 2022, Wells Fargo and its predecessor firms overcharged approximately 10,945

20:44 - 21:39

Tina Diamantopolous: accounts of advisory clients for more than $26.8 million in advisory fees. And specifically from at least 2002 through 2014, certain investment advisor representatives from Wells Fargo's and its predecessor firms agreed to reduce the firm's standard preset advisory fee rate for certain clients at the time these clients agreed to open accounts. So the representatives made handwritten notes or typed changes on the client's standard investment advisory agreements that reflected this reduced fee rate. However, in most circumstances the accounts processing employees at Wells Fargo and its predecessor firms failed to enter the agreed-upon reduced advisory fee into the firm's . . .

21:39 - 22:25

Tina Diamantopolous: billing statements. And so when the counts were settled, the advisory clients were overcharged for these advisory fees. So we also allege that Wells Fargo and its predecessor firms failed to adapt and implement written compliance policies and procedures reasonably designed to prevent this overbilling. And as a result of some of the things I've mentioned and others, Wells Fargo overcharged certain clients who opened accounts from 2014 on for several years through December of 2022. Based on this conduct, we found that they willfully violated section 206-2 and 206-4, the Advisers Act, as well as rule 206-4(7), they're under. Wells . . .

22:25 - 23:16

Tina Diamantopolous: Fargo settled to a cease and desist order and a $35 million civil penalty. I'll quickly mention some of the other issues. We've also played a key role in the off-channel communications cases. I know you've talked about them earlier before but specifically our office brought 15 settled administrative proceedings against broker dealers and investment advisors for their widespread and longstanding failures to maintain and preserve electronic communications. And respondents paid a combined $150 million in these CHRO matters. Also most recently, about two weeks ago on September 12th, the Chicago office was part of a group of cases against 12 . . .

23:16 - 24:00

Tina Diamantopolous: municipal advisers who were charged with record-keeping violations. And so these advisors paid $1.3 million in penalties and this case shows that really the record-keeping requirements on regulated entities will be taken extremely seriously by the commission and regardless of what type of registrant is at issue. I think it's been talked about on some of the other panels of just how important the books and records requirements are. So I will not overemphasize that point. There's also some roadmaps for compliance in some of these cases that I think would be helpful to folks. The other quick area that I . . .

24:00 - 24:35

Tina Diamantopolous: wanna mention that we've been leading in both the exams and the enforcement program is compliance with regulation best interest. Again, I won't go into the details because I see the clock here, we're running short on time, but in the Chicago office we brought the first litigated case in the Western International case. We brought the first settled case in the Carl Hennig case and we've recently Brought two cases in the last week with a few in between against a state farm and also First Horizon Advisors. So I urge you, involving your practice, to take a look at . . .

24:35 - 25:00

Tina Diamantopolous: those matters of further defining what Regulation Best Interest is important to us and important to protect. I'll also just quickly note that Reg BI is one of those areas where there's a lot of guidance as well. We have on our website we have frequently asked questions, we have staff bulletins in addition to the illustrative actions that I've just spoken about. . . .

25:01 - 25:36

Margaret Nelson: Great Tina. So very helpful and it shows the importance of the Chicago office and the national enforcement regime. But we're sitting in a room, and it's pretty obvious. You know many folks here from the defense bar, both professionally and personally, and in the effort of full disclosure, Tina and I used to work together as well. So understanding that you are interested in hearing the other's perspective that may disagree with the staff's position on certain issues. Can you give us any tips in terms of what forms of advocacy you find helpful sitting across from defense counsel?

25:37 - 26:20

Tina Diamantopolous: Absolutely, yes. So, I mean, good advocacy, it's gonna be focused, right? It's gonna be honest, collegial, and ideally for us helpful. So, what do we really mean by that? It's coming in and sort of identifying issues that maybe the staff has asked about, but it may also be identifying issues for the staff that we have not asked about, because that may be hopeful to your position. That gives us the opportunity to consider that . . .

26:20 - 26:57

Tina Diamantopolous: at that stage. It's also being respectful and collegial. You know, all of us, and I do believe this, are in the business of trying to do the right thing. And so I know that when people are coming in, you're going to be advocates for your clients. But I also know that you're interested in pursuing the truth. And so the reality of these conversations is that we are trying to get to the point of what has actually happened. And if we're having this meeting, maybe there's something in the process that hasn't translated. So bringing that forward is . . .

26:57 - 27:40

Tina Diamantopolous: often helpful. And bringing it in a tone that is honest and respectful and you know with the intention behind it and being transparent you know I think everything with good faith and transparency is always helpful. Maybe there was a real good reason why there was delay in getting the documents to the examination staff. Maybe there was really good reason in why the enforcement discussions have taken longer than they should have. The staff is going to be interested in that and they're going to be interested and appreciative of your honesty, but at the same time, the staff . . .

27:40 - 28:29

Tina Diamantopolous: also has a lot of information. And as the defendant, you're not always positive on how much or what information we have. And so it's also not helpful if people think that if they limit the amount of information they share, we may not know about it. I also will go back really quickly to the point I made about all of the experts in both the policy making divisions or in DERA, we are able to work and collaborate with everyone and we're doing that when we're working on an action. So we are bringing our best expertise forward. So insights that are honest, transparent, and helpful always move the ball forward.

28:30 - 28:46

Margaret Nelson: Any tips on unhelpful or counterproductive? Obviously, you don't want to lie. You don't want to be untruthful. I think that's pretty clear. But anything else that you can share with us in terms of approaches that you don't find particularly helpful?

28:47 - 29:30

Tina Diamantopolous: Yeah, so kitchen sink defenses, just trying to throw everything that you possibly can at the staff is probably not going to be helpful. That doesn't save anybody really any time. Sometimes people also like to reach out above the enforcement staff to higher-ups and you know the staff is going to find out about that. I mean if you want the meeting, ask for the meeting, but the enforcement staff is working on your case. They're your contact person. It's always helpful to treat them with that respect. The other thing I would say is mischaracterizing what's happened when there's

29:30 - 30:06

Tina Diamantopolous: evidence that that's not the case, assuming bad faith on the act of the staff, all of these things are not going to be productive or helpful in these conversations. And honestly, if I leave you all with one thing, it's to be thoughtful. And I know that that might sound too simplistic, but I hope you've taken into account all of the things that you know about our process and about everyone that we work with in coming up with an action in order to come in and advocate.

30:09 - 30:34

Margaret Nelson: Okay. Recognizing we have about a minute left, you know, just generally, is there anything you can talk about in terms of what kind of keeps you up at night, in terms of risks, whether it be certain practices or certain industries that you think may prove harmful, whether to the industry participants, investors, to the economy. Just anything along those lines?

30:34 - 31:23

Tina Diamantopolous: 11 seconds. I'm going to go just a minute over, Bruce, if that's OK. In short answer, I really think a lot about technology. Technology spanning from gamification to cybersecurity to fintech to organizations thinking that they can mimic registrants, but without giving protections to investors. I feel like every day you pick up the newspaper and you're reading about some form of technology, AI, algorithms, everything sort of interceding in the important process of how people save and how people run the markets. So to me, that's sort of what I worry a lot about and I wanna make sure that we try . . .

31:23 - 32:01

Tina Diamantopolous: to always maintain our ability and I hope that others will too. We've talked about self-reporting during the day as well. These are some of the most critical areas when someone, a registrant, a firm, any industry really has an issue. But if it's going to be affecting retail investors, it's really going to be, in my mind, in our best interest to try to get ahead of it as soon as we can.

Margaret Nelson: Great. Well, thanks so much, Tina. It's been very thought-provoking and insightful, and we appreciate your time.