CFO Failed to Stop Offering Fraud
The CFO of a company accused of an offering fraud agreed to pay a $50,000 fine and was barred from the securities industry for failing to take action to stop the fraud. The SEC says that it limited the penalties because the respondent agreed to cooperate in its investigation. The SEC asserts that the CFO knew, or was reckless in not knowing, that the offering documents and investor communications misled investors about closing conditions and use of proceeds. The SEC also faults the CFO for ignoring several red flags about the principals’ misappropriation of investor funds. The CFO did not receive any compensation from the company, which ultimately failed.
OUR TAKE: The SEC will hold senior officers accountable (and seek their cooperation) for failing to stop wrongdoing even if such officer did not receive any specific personal benefit from the unlawful activity. The SEC continues to extend securities law liability to gatekeepers even though they are not the parties conducting the securities offering.