Chief Operating Officer Did Not Stop Boss’s Fraud
The SEC fined and censured the Chief Operating Officer of now defunct registered and offshore funds for failing to stop his firm and his boss from committing securities fraud.
The SEC alleges that the firm misused offering proceeds to fund shell companies under the principal’s control. Rather than attempt to stop the wrongdoing, the charged COO assisted the fraud by transmitting false statements to clients, maintaining incorrect website information, and providing false information to service providers. Although the SEC did not specifically allege that the COO knew about the misappropriation of funds, the SEC faults him for accepting the information received from the principal without taking reasonable steps to confirm accuracy. The SEC charges the COO with causing the firm and its principal with violating the securities laws. The firm’s principal faces criminal charges brought by the U.S. Attorney’s Office for the Southern District of New York.
C-suite executives cannot just follow their bosses into the regulatory/criminal abyss. The SEC (and the DoJ) will hold them accountable if they knew or should have known of wrongdoing but failed to take any action.
Read SEC order here.