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SEC Orders Adviser to Hire Dedicated CCO 

SEC Orders Adviser to Hire Dedicated CCO 

The SEC ordered an investment adviser to appoint a dedicated Chief Compliance Officer as part of a settled enforcement action alleging a series of compliance violations.  The SEC has also required the respondent to retain an independent compliance consultant, notify all advisory clients of the enforcement order, and pay significant fines and disgorgement.  The SEC alleges that the firm and its principals directed clients into the same mutual funds that charged 12b-1 fees, which were paid back to firm employees who were registered representatives of a broker-dealer.  The SEC charges that the firm (i) did not provide clients with adequate disclosure, (ii) ensure best execution by investing in lower-fee share classes, and (iii) failed to file and deliver an accurate Form ADV.  The SEC also faults the firm for failing to complete compliance reviews for several years, as required by the compliance rule (206(4)-7).  The firm’s President and majority owner served as CCO for most of the period during which the alleged misconduct occurred.

OUR TAKE: Investment advisers, funds, and broker-dealers should appoint a dedicated Chief Compliance Officer with relevant regulatory experience either by hiring a full-time employee or by retaining a competent third party compliance firm that offers outsourced CCO services.  The SEC has warned, through enforcement actions and speeches, that firms who slough off compliance on otherwise engaged (and/or inexperienced) executives run significant risk of compliance breakdowns and enforcement actions.

http://www.sec.gov/litigation/admin/2016/34-76897.pdf

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