SEC Commissioner Opposes Enforcement Actions against CCOs

SEC Commissioner Daniel Gallagher has issued a public statement opposing liability imposed on two Chief Compliance Officers in recent enforcement actions.  According to Mr. Gallagher, “Both settlements illustrate a Commission trend toward strict liability for CCOs.” He said that the SEC has offered “no guidance as to the distinction between the role of CCOs and management in carrying out the compliance function.”  Consequently, “there is a significant risk that by taking ownership of the implementation of the policies and procedures, CCOs could unwittingly also be taking ownership of business functions, subjecting them to strict liability whenever there is a violation of the securities laws.”  Mr. Gallagher believes that liability should rest with senior management: “At the end of the day, ultimate responsibility for implementation of policies and procedures rests with the adviser itself.”

OUR TAKE: CCOs should never have liability for securities law violations absent a direct personal benefit flowing from intentional conduct that furthers a fraud.

http://www.sec.gov/news/statement/sec-cco-settlements-iaa-rule-206-4-7.html