SEC ENFORCEMENT DIRECTOR OFFERS GUIDANCE TO CCOs TO AVOID PERSONAL LIABILITY
In a recent speech, the SEC’s Enforcement Director, Linda Chatman Thomsen, indicated that the SEC will recommend enforcement actions against compliance officers only “in rare instances of egregious misconduct, usually involving knowing and intentional inaction when confronted with such violations.” She indicated that the SEC is not looking for compliance perfection but for “sustained attention” to compliance and a good faith effort to seek out and address compliance issues. She further explained that having good policies and procedures was not sufficient unless the compliance officer effort made an effort to enforce those procedures. She cited the recent enforcement action against Chanin Capital where the SEC took action against the CCO who failed to take action to enforce adequate policies and procedures.
OUR TAKE: This standard of care should give compliance officers some comfort. The SEC is saying that as long as the compliance officer does not act willfully (or with gross negligence) by ignoring known compliance problems or failing to take action to enforce policies and procedures, the compliance officer should not suffer an enforcement action. One open question is whether this standard of care will apply in private rights of action.