A federal court found that a Chief Compliance Officer violated the Advisers Act’s compliance rule because he was unfit for the role he undertook. The court determined that the CCO acted recklessly by assuming the compliance position despite his “complete lack of qualifications for that job.” The court also found that the CCO aided and abetted his firm’s other regulatory violations including commingling of client assets, inflating valuations, and misappropriating assets. The CCO was fined and barred from the industry. The firm and the firm’s principal were also fined and barred.
The Chief Compliance Officer must be “competent and knowledgeable” in the Advisers Act, according to the compliance rule’s adopting release. An unqualified CCO in and of itself violates the compliance rule and can result in significant firm and personal liability. Every firm should retain a third party CCO firm or hire a qualified regulatory professional. Appointing whoever drew the short straw at the management meeting won’t cut it with the SEC.