SEC Will Prosecute CCOs that Cross a “Clear Line”

Repost from Cipperman Compliance Services, LLC

At a recent compliance conference, the SEC’s Director of the Division of Enforcement Andrew Ceresney said that the SEC will bring actions against Chief Compliance Officers who cross a “clear line.”  Mr. Ceresney said, “Being a CCO does not provide immunity from liability.”  He continued that the SEC will charge CCOs where s/he (i) has exhibited a “wholesale failure to carry out his or her responsibilities”; (ii) is affirmatively involved in misconduct that is unrelated” to the compliance function; or (iii) has engaged in “efforts to obstruct or mislead the Commission staff.”  Mr. Ceresney heavily criticized CCOs that had other firm responsibilities (i.e. multiple hats).  He also highlighted factors that lead to enforcement actions including failure to include compliance personnel in critical meetings, CCOs that do not report to the CEO or the Board, and under-resourcing the compliance function.

OUR TAKE: Until the SEC provides for immunity, CCOs will still feel the target on their backs.  The fear of prosecution is causing a shortage of qualified professionals willing to accept the CCO role, as too many compliance professionals feel that firms use them as regulatory human shields.  Firms should also follow Mr. Ceresney’s advice to ensure the following: (i) the CCO reports to the CEO and the Board and that the CCO is consulted on critical business decisions, (ii) the CCO is dedicated solely to compliance, and (iii) properly resource the compliance function by spending no less than 5% of revenues on compliance.

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