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CCO Disciplined for Failing to File Suspicious Activity Reports

CCO Disciplined for Failing to File Suspicious Activity Reports

 The SEC sanctioned a Chief Compliance Officer of a broker-dealer for failing to file Suspicious Activity Reports despite having knowledge of certain red flags. The SEC alleges that a broker under the Respondent’s supervision manipulated the prices of several microcap stocks through matched orders, wash trades, and other means. The SEC alleges that the Respondent should have filed SARs but ignored the following red flags: (1) large amounts of cash wired into and out of a principal’s bank account (which gave rise to inquiries from the firm’s clearing agent) and (2) transfers to third parties, about which the Respondent raised concerns. The SEC also charged a failure to supervise. The CCO agreed to a 12-month ban on supervision and a $20,000 fine. 


OUR TAKE: We believe the SEC called out the CCO because she knew of the illegal conduct, was required to report it (and perhaps stop it), but did not take any affirmative action. This case is also another example of the heightened responsibilities of CCOs, especially with broker-dealers where the CCO has supervisory responsibility.