Consultant Charged with Aiding/Abetting Compliance Breakdowns
A compliance consultant serving as his client’s Chief Compliance Officer was censured, fined, and ordered to undergo 30 hours of training for aiding and abetting his client’s failures to implement an adequate compliance program. The SEC also fined and censured the firm and its principal. The SEC cited a wide array of compliance breakdowns including (i) the failure to obtain client consent for principal transactions with an affiliated broker-dealer, (ii) a non-tailored “off-the-shelf” compliance manual, (iii) a lack of annual compliance reviews, (iv) no Code of Ethics enforcement, and (v) the failure to deliver financial statements for a private fund within 120 days as required by the custody rule (206(4)-2). The SEC charged the compliance consultant, a FINRA veteran with little SEC compliance experience, with aiding and abetting violations of the compliance rule (206(4)-7), the custody rule, and the prohibition on principal transactions without client consent (206(3)). The SEC noted that the compliance consultant spent less than 9 hours per month on the compliance program.
OUR TAKE: Not all compliance consultants are created equally. In this case, an allegedly unqualified consultant ignored the basic requirements of a reasonable compliance program, thereby contributing to the firm’s noncompliance. This case also shows that consultants can be held liable for aiding and abetting their clients’ violations.