54 Journal of Regulatory Compliance Issue II
In the middle of regular and mundane daily work activities you uncover
that the President is stealing from company accounts. 7 You immediately
notify the proper authorities. 8 The investigation will take a lot of work, but
you are determined to do the right thing. In the middle of it all, you miss
your annual compliance review, but the investigation is much more pressing. 9
During the investigation the Securities and Exchange Commission (“SEC”)
comes after you and your firm for the conflict of interest with your top
portfolio manager. 10 There were no proper procedures in place to address a
conflict of interest. 11 You also did not have the proper procedures in place
for the review of senior management accounts, even though the President was
still technically a senior manager. 12 Senior management told you not to
worry about certain accounts, and now you are being held liable. And above
all, the SEC informs you that you failed to supervise the employee that you
recommended firing, but did not have the authority to do so. 13
What happens now? Fines are awarded, cease and desist orders are sent
out, and careers are ruined. Maybe you can recover from something like this.
Maybe the next company you work at will understand that you were unfairly
charged. Maybe you never want to be a CCO again. After all, if you cannot
control the company but can take the fall for its actions, is it really worth it?
Chart 1 shows cases that provide examples of enforcements against CCOs
for allegations financial noncompliance. This paper will analyze these cases
and several others in greater depth to understand the laws behind them and
whether there is a trend emerging regarding the punishment of compliance
officers. First, this paper will review the history of regulations pertaining to
investing, with an explanation of the specific laws that govern the cases.
Subsequently there will be an analysis of recent cases highlighting the trends
in enforcements against CCOs. This analysis will demonstrate that the
government is crossing the line with these recent enforcements and will push
good compliance officers out of the industry.
No. 3-13655, at 25 (Sept. 8, 2010), https://www.sec.gov/litigation/aljdec/2010/id402bpm.pdf
[hereinafter Urban Initial Decision].
7. SFX, supra note 1, at 3.