CCO Fined and Barred for Failing to Conduct Rule 144 Due Diligence
A broker-dealer Chief Compliance Officer was fined $50,000 and barred from the industry for failing to implement procedures to prevent the unlawful liquidation of microcap securities. FINRA asserts that the firm and its principals liquidated 74 million shares of microcap securities without satisfying Rule 144, thereby distributing securities in violation of the Securities Act. The firm’s Written Supervisory Procedures designated the CCO as the person responsible for Rule 144 compliance. FINRA rejected the CCO’s defense that the WSPs did not reflect how the firm actually operated. FINRA also faulted the CCO for adopting inadequate WSPs, which failed to outline procedures to conduct adequate due diligence.
The CCO should review the compliance manual or WSPs and ensure s/he understands and undertakes all designated responsibilities. If the CCO can’t or won’t follow the procedures, then s/he must revise the procedures to satisfy regulatory requirements while reflecting the firm’s accurate allocation of authority.