CFTC Imposes $800,000 Fine for CEO’s Outside Fraud

The CFTC fined an RIA/CPO $800,000 for failing to stop its CEO from defrauding investors as part of an outside business activity.  The CFTC asserts that the CEO used the firm’s resources, including its email system, trading facilities, and personnel to assist an outside offering fraud involving alleged performance misrepresentations.  The CFTC argues that the respondent became responsible for the CEO’s conduct because the use of firm resources brought his conduct within the scope of his employment.   The firm’s compliance department uncovered the outside activity and questioned the CEO, who took his own life soon thereafter.

OUR TAKE: The CFTC breaks new regulatory ground by connecting use of company facilities as constituting conduct within the scope of employment.  Compli-pros must re-think supervision of outside business activities if the regulators will fine an RIA or CPO for every action taken by a senior executive, many of whom have outside business activities.  Is it better for an executive to use company facilities so that Compliance can monitor OBAs, or should Compliance force all such activities off the company grid?

http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfconvergentorder121916.pdf