Chief compliance officers should take note of two recent enforcement actions in the financial sector.
In these cases, the regulators have gone after the compliance officers (in addition to others).
In the 1st case, the SEC alleges that the chief compliance officer was “carrying out his compliance responsibilities in an extremely reckless manner.” It further alleges that the cco “was required to review and monitor” trading practices “to make sure they were fair and equitable”. It says, other than occasionally “spot checking” trade paperwork the CCO “essentially did nothing” to ensure the firm’s trading policies and procedures were being followed.
Attorney Brian Daly, a partner in the regulatory and compliance and investment management groups of Schulte Roth & Zabel in New York, called the SEC action “pretty extreme.” (Reisnger, 2019) Daly spent a decade as a general counsel and chief compliance officer at several investment firms before joining Schulte, including at Kepos Capital, Raptor Capital Management and The Carlyle Group.
“It’s unusual,” Daly told Corporate Counsel. “It’s one thing to say he [compliance officer] could be sanctioned or censured, but they are accusing him of recklessly not carrying out his duties because of inaction, and of aiding and abetting bad actions.” (Reisnger, 2019)
The 2nd enforcement case accused the chief compliance officer of allegedly engaging in fraud and then making false statements to the National Futures Association.
In May of this year, the CEO of the firm was charged with allegedly misappropriation, fraud and making false statements. This led to the CFTC ordering the firms cco to pay $150,000 ($125,000 in restitution and $25,000 civil penalty) for fraud and false statements.
Philadelphia attorney Mary Hansen, the co-chair of the white-collar defense and corporate investigations practice at Drinker Biddle & Reath, said (about the 2nd case), the case should serve as a warning to chief compliance officers. “In the last couple years, we’ve seen more compliance officers charged,” adding, “and that’s not going away.” (Resinger, 2019)
While not in the healthcare field these cases and others reinforce the on-going need to create effective compliance programs.
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Reisinger, S. (2019, Sept. 25) Regulators Put Chief Compliance Officers in Their Sights in 2 Financial Fraud Cases Retrieved from http://www.law.com