Compliance Officer Charged with Altering Documents
The SEC has initiated enforcement proceedings against a compliance officer that it charges with altering documents following the commencement of an investigation. According to the SEC, the respondent had sole responsibility for investigating suspicious trading but failed to identify insider trading by a registered representative ultimately prosecuted by the SEC. The respondent had closed her 2010 review with “no findings” even though the policies and procedures indicated several red flags for follow up. After the SEC commenced an investigation in 2010, the SEC alleges that the respondent added information to the report and allowed the altered document to be delivered to the SEC. The SEC found evidence of the document alteration in document metadata and inconsistencies between versions of the same document. Because the respondent closed the file with “no findings,” her supervisors never became aware of the underlying suspicious activity, which led to charges against the firm.
OUR TAKE: The respondent may have lost her job for failing to detect the insider trading. However, she now has a public enforcement action against her for trying to cover it up. Also, firms and compliance officers should take note that false negatives (everything is ok) are much more dangerous than false positives (issue identified that is not really an issue).