CCO SANCTIONED FOR FAILING TO ENFORCE POLICIES/PROCEDURES
The Chief Compliance Officer of a broker-dealer was sanctioned and fined for failing to enforce the BD’s insider trading policies and procedures. The firm had written polices and procedures including a section of the employee handbook, an insider trading policy, and pre-clearance requirements. However, the SEC alleged that the CCO failed to (i) obtain required acknowledgments of the firm’s insider trading policies, (ii) maintain a watch list, (iii) record whether employees received mandatory training, and (iv) obtain updated lists of trading accounts. The SEC charged that the CCO willfully aided and abetted and caused the BD firm’s violations of Section 15(f) of the Exchange Act, which requires policies and procedures reasonably designed to prevent misuse of nonpublic information. The BD firm was affiliated with an investment bank, which would be likely to have material nonpublic information.
OUR TAKE: The SEC does not allege that anybody in the firm actually engaged in insider trading. However, much like the compliance rule for funds and advisers, a failure to have adequate insider trading procedures will, in and of itself, violate the securities laws even in the absence of a violation of the underlying prohibitions. The SEC is showing that it is serious about a firm enforcing (and not just having) required policies and procedures. It is also reminding firms about the importance of preventing misuse of material nonpublic information.