CCO Prosecuted for Aiding and Abetting Principals’ Fraud

 The Chief Compliance Officer of a broker-dealer has pled guilty to conspiring to commit securities fraud and has been barred from the industry in connection with aiding and abetting a fraudulent scheme perpetrated by the principals of the BD for whom she worked. The SEC has alleged that the principals used client money for personal purposes rather than invest the funds in an enhanced equity index strategy. The SEC has alleged that the CCO, who also served as the firm’s bookkeeper, aided and abetted the fraud by wiring the funds to the principals and documenting the transfers as loans. The SEC has alleged that the CCO personally benefited through “an annual salary and bonus of several hundred thousand dollars.” The SEC also claims that she received some client funds directly.

OUR TAKE: It appears that the SEC took action against the CCO, not because she served as CCO, but because she actively participated in the scheme by papering the transactions. What is somewhat troubling is that the SEC seems to claim that the she benefited primarily through her salary and bonus. Is the SEC saying that high compensation is circumstantial evidence that a lower-level actor participated in a fraud that primarily benefited a firm’s principals?

http://www.sec.gov/litigation/complaints/2009/comp21144.pdf
http://www.sec.gov/litigation/admin/2009/34-60543.pdf