A fund portfolio manager was barred from the industry and fined over $350,000 for misleading the Chief Compliance Officer investigating personal trading violations.  According to the SEC, the respondent engaged in active personal trading in violation of Rule 17j-1 and the funds’ Code of Ethics.  The SEC alleges that the respondent did not pre-clear or report personal securities transactions, submitted false quarterly and annual reports, physically altered brokerage statements, and backdated confirmations.  When the CCO inquired about irregularities, the portfolio manager falsely stated that certain brokerage accounts were closed and physically altered brokerage statements to hide his personal trading, as alleged by the SEC.  The SEC charges violations of Section 17(j) and Rule 38a-1(c), which prohibits a fund officer, director, or employee from misleading the fund’s CCO.

OUR TAKE: Compliance is not a cat-and-mouse game where those regulated try to evade the CCO.  Rule 38a-1(c), as applied in this case, make clear that compliance is everybody’s responsibility.  We applaud the SEC for applying the compliance rule to the individual wrongdoer, rather than targeting the CCO for failing to stop the violations.